Republican wins Wisconsin vote

Scott Walker has become the first US governor to survive a recall vote

The Republican governor of the US state of Wisconsin, Scott Walker, has defied an attempt to vote him out of office.

With 87% of votes counted in a rare recall election, he has 54% compared to 45% for Democratic challenger Tom Barrett, who has now admitted defeat.

The rare recall poll in the mid-western state was forced by opponents of a law passed by Mr Walker that limited workers' collective bargaining rights.

The poll is seen as a key test ahead of November's presidential elections.

Politicians are watching closely for signs that a state that backed President Barack Obama in the last presidential election in 2008 may be tipping more towards Republicans, the BBC's Jonny Dymond in Washington says.

Republican presidential nominee Mitt Romney, who will be challenging President Barack Obama, was quick to congratulate Mr Walker.

"Tonight's results will echo beyond the borders of Wisconsin. Governor Walker has shown that citizens and taxpayers can fight back - and prevail - against the runaway government costs imposed by labour bosses," Mr Romney said.

However, recall elections are not the same as presidential contests, and the arguments in Wisconsin were peculiar to the state, our correspondent says.

Key swing state

Voter turnout in Tuesday's election was high, correspondents say.

Roberta Komor of Wauwatosa told Reuters that she had voted for Mr Barrett when he ran in 2010, but switched her vote this time, saying unions "need to learn about shared sacrifice".

Andrew Karls, a Barrett supporter, said he did not expect the Milwaukee mayor to win, but believes enough of the recalled senators will lose, flipping control of the Wisconsin Senate to Democrats.

Mr Walker's lieutenant governor, Rebecca Kleefisch, and three Republican state senators also won recall votes on Tuesday.

Mr Walker is only the third governor in US history to face a recall vote and the first to win.

His reform of the public sector - forcing employees to contribute more towards healthcare and pensions and stripping public sector unions of collective bargaining rights - set off a weeks of angry protests.

But he was aided by huge sums from big business and strong organisation on the ground, our correspondent says.

The fight in Wisconsin reflects the broader national conversation over budgets and the sluggish economic recovery.

Wisconsin is seen as one of a handful of swing states that could be especially important in determining the outcome of the presidential election.

The state has voted Democratic in the last six presidential elections, and in 2008 Barack Obama carried Wisconsin with a 14% margin - a big swing.

At the very least, Mr Obama can no longer take it for granted as he might have done before Tuesday's vote, our correspondent says.

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US NEWS: Obama requesting help to pay for Afghan army

US President, Barack Obama

WASHINGTON (AP) -- Mapping the way out of an unpopular war, the United States and NATO are trying to build an Afghan army that can defend the country after 130,000 international troops pull out. The alliance's plans for arm's-length support for Afghanistan will be a central focus of the summit President Barack Obama is hosting Sunday and Monday in Chicago.

The problem with the exit strategy is that someone has to pay for that army in an era of austerity budgets and defense cutbacks.

The problem for the United States is how to avoid getting stuck with the check for $4.1 billion a year.

"This has to be a multilateral funding effort," said Pentagon spokesman George Little. "We think there should be contributions from other countries."

That's partly why so many non-NATO nations are getting invitations to the summit. About 60 countries and organizations are expected to be represented, including nations such as Japan that are far removed from the trans-Atlantic defense pact's home ground.

More than 20 nations have already agreed to help fund the Afghan army and more are expected to announce their commitments at the Chicago summit. U.S. and other NATO leaders claim that fundraising is on track, although the totals publicly announced so far are small.

A senior Obama administration official said the U.S. and its partners would seek to set targets at the summit for the size and scope of the Afghan security forces after 2014, when foreign forces pull out. The official, who spoke on the condition of anonymity in order to preview the upcoming summit, would not detail pledges expected in Chicago.

That force is now projected to be smaller - and cheaper - than NATO had planned only a year ago. The decision to trim the goal for an Afghan force from about 350,000 to roughly 230,000 was driven more by economic reality than a shift in thinking about Afghanistan's security needs after 2014, U.S. military officials and NATO diplomats said. The officials spoke on condition of anonymity to discuss internal planning. The larger force had been projected to cost $7 billion a year.

Obama is unlikely to say so, but outside estimates of the U.S. share of the bill for Afghan defense after 2014 range from a quarter to well more than half the total bill. The U.S. will also be on the hook for other support to Afghanistan, but the amount is unclear. The United States is the richest and best-equipped nation in the NATO alliance and long Afghanistan's largest patron.

Obama signed a pledge with Afghan President Hamid Karzai this month that would obligate the U.S. for a decade. Several other nations have signed similar long-term deals, and NATO is to sign one with Afghanistan at the Chicago meeting. The agreements cover a range of assistance to Afghanistan, but underwriting the military is the largest line item.

The summit in Obama's adopted hometown is not a pledging conference, but it will be a platform for Obama to invite other nations to step up.

Follow-up conferences are planned for Kabul and Tokyo later this year, where specific pledges are expected.

U.S. officials have had their tin cups out for months. Marc Grossman, the top State Department official for Afghanistan, recently hit up European nations, and others are lobbying Russia, Central Asian and Asian nations. U.S. officials are asking for pledges to sustain an Afghan force of roughly 230,000 during the first three years after the NATO-led international force departs.

The argument is fairly straightforward. Even $4 billion a year to prop up the Afghan military is cheaper than the cost of maintaining a foreign army in Afghanistan, and a lot easier for war-weary publics to swallow.

Some of the requests appear to be largely symbolic. For example, U.S. officials asked some of Afghanistan's neighbors for initial pledges of about $5 million annually, said Richard Weitz of the Hudson Institute in Washington.

"That's nothing, but it's something, too," Weitz said, since it serves the diplomatic goal of showing broad support for Afghan stability.

Afghanistan has said it will contribute $500 million toward its own army. The goal is $2.3 billion from the U.S. and nations outside the fighting coalition, and $1.3 billion from coalition nations other than the U.S.

"You'll see a strong commitment from allies and partners, and from the Afghan government" in Chicago, NATO spokeswoman Oana Lungescu said.

The White House said Obama discussed continued support for Afghan forces during pre-summit phone calls Tuesday with the leaders of Australia and Italy.

Britain had already pledged $110 million annually beginning in 2015, and on Wednesday Australia announced that it will contribute $100 million annually for three years.

Afghanistan will dominate the agenda for the Chicago meeting, although there is likely to be little discussion of the military campaign itself. Karzai is attending and this week NATO invited Pakistani President Asif Ali Zardari.

NATO is eager to bring forces home but is pledged to a calendar agreed the last time the leaders met, in 2010. Under that agreement, NATO forces will remain in Afghanistan into 2014 and depart that year.

In Chicago, Obama and other NATO leaders will sign up anew to that schedule, even though a majority of Europeans and Americans now tell pollsters the war is not worth fighting and should end as quickly as possible. In Afghanistan this month, Obama said the war must end "responsibly," which cannot mean suddenly.

U.S. and other NATO officials have said there will be no new announcement of troop withdrawals during the Chicago conference. Largely because of public opposition to the war, NATO nations quietly tweaked the 2014 plan earlier this year. The overall deadline holds, but U.S. and other allied forces will shift into largely noncombat roles next year.

The Chicago summit had once been viewed as a possible showcase for progress toward peace talks and a political settlement between Karzai's government and the Taliban. There is no real gain to show, however. The insurgents walked away from U.S.-led talks in March. U.S.-backed peace initiatives to open a Taliban political office and transfer Taliban prisoners from the military prison at Guantanamo Bay, Cuba, are in limbo. Insurgents have assassinated the leader and a top lieutenant of the Afghan peace council.

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US President Barack Obama sees 'new day' 1 year after bin Laden raid

President Barack Obama delivers a speech from Bagram Air Field, Afghanistan

KABUL, Afghanistan (AP) -- On a swift, secretive trip to the war zone, President Barack Obama declared Tuesday night that after years of sacrifice the U.S. combat role in Afghanistan is winding down just as it has already ended in Iraq. "We can see the light of a new day," he said on the anniversary of Osama bin Laden's death and in the midst of his own re-election campaign.

"Our goal is to destroy al-Qaida, and we are on a path to do exactly that," Obama said in an unusual speech to America broadcast from an air base halfway around the world.

He spoke after signing an agreement with Afghan President Hamid Karzai to cover the decade after the planned final withdrawal of U.S. combat troops in 2014. Obama said American forces will be involved in counter-terrorism and training of the Afghan military, "but we will not build permanent bases in this country, nor will we be patrolling its cities and mountains."

In a blunt reminder of Afghanistan's fragile security situation, a series of explosions and gunfire erupted in Kabul just hours after Obama left, killing at least six people. The attacks occurred near a private armed compound that houses hundreds of international workers. One of the blasts was a suicide car bomb, Interior Ministry spokesman Sediq Sediqi said. The Taliban claimed responsibility for the attack.

The president landed in Bagram in darkness, and his helicopter roared to Kabul for the meeting with Karzai, under close guard with only the outlines of the nearby mountains visible. Later, back at the base, he was surrounded by U.S. troops, shaking every hand. He ended his lightning visit with the speech delivered straight to the television camera - and the voters he was trying to reach back home.

Two armored troop carriers served as a backdrop, rather than the customary Oval Office tableau.

His Republican re-election foe, Mitt Romney, was in New York, where the destruction of the twin towers on Sept. 11, 2001, set in motion the decisions that led to the wars in both Iraq and Afghanistan.

Romney accused Obama of politicizing the fleeting national unity that came with the death of bin Laden, the 9/11 terror mastermind.

In a statement released by his campaign later, Romney said he was pleased that Obama had returned to Afghanistan, that the troops and the American people deserved to hear from the president what is at stake in the war. "Success in Afghanistan is vital to our nation's security," he said.

At the air base, Obama said, "This time of war began in Afghanistan, and this is where it will end. ... With faith in each other, and our eyes fixed on the future, let us finish the work at hand and forge a just and lasting peace."

Earlier, he delivered a similarly upbeat message to the troops. Noting their sacrifice, he said, "There's a light on the horizon."

It was Obama's fourth trip to Afghanistan, his third as commander in chief. He was less than seven hours on the ground in all. He also visited troops at a hospital at the Bagram base, awarding 10 Purple Hearts.

According to the Pentagon, more than 1,800 American troops have been killed across more than a decade of war in Afghanistan.

Some 88,000 remain stationed there.

The wars here and in Iraq combined have cost almost $1.3 trillion. And recent polls show that up to 60 percent of Americans oppose the continued U.S. presence in Afghanistan.

In his speech to the nation, Obama said, "I recognize many Americans are tired of war."

He said that last year, "we removed 10,000 U.S. troops from Afghanistan. Another 23,000 will leave by the end of the summer. After that, reductions will continue at a steady pace, with more of our troops coming home. And as our coalition agreed, by the end of 2014 the Afghans will be fully responsible for the security of their country."

Without mentioning the political campaign back home, Obama claimed that on his watch the fortunes of the terrorists have suffered mightily.

Over the past three years "the tide has turned. We broke the Taliban's momentum. We've built strong Afghan security forces. We devastated al-Qaida's leadership, taking out over 20 of their top 30 leaders," he said.

"And one year ago, from a base here in Afghanistan, our troops launched the operation that killed Osama bin laden."

In a reference to the destruction of New York's World Trade Center on Sept. 11, 2001, he added, "As we emerge from a decade of conflict abroad and economic crisis at home, it is time to renew America ... a united America of grit and resilience, where sunlight glistens off soaring new towers in downtown Manhattan, and we build our future as one people, as one nation."

He spoke for less than 15 minutes, beginning at 4 a.m. in Afghanistan, 7:30 p.m. on the East Coast of the United States. Minutes later, Air Force One was on its way back to Washington.

Obama flew to the site of America's longest war not only as commander in chief but also as an incumbent president in the early stages of a tough re-election campaign. Nor were the two roles completely distinct.

His presence was a reminder that since taking office in 2009, Obama has ended the war in Iraq and moved to create an orderly end for the U.S. combat role in Afghanistan.

In the political realm, he and Vice President Joe Biden have marked the one-year anniversary of bin Laden's death by questioning whether Republican challenge Romney would have ordered the daring raid that penetrated the terrorist leader's Pakistan hide-out. Republicans are accusing the president of trying for political gain from the event, and Romney is insisting that he would indeed have ordered U.S. forces into action.

The deal signed with Karzai does not commit the United States to any specific troop presence or spending. But it does allow the U.S. to potentially keep troops in Afghanistan after the war ends for two specific purposes: continued training of Afghan forces and targeted operations against al-Qaida. The terror group is present in neighboring Pakistan but has only a nominal presence inside Afghanistan.

Obama said the agreement was meant in part to pay tribute to the U.S. troops who have died in Afghanistan since the war began. He also underlined his message to Afghans.

"With this agreement I am confident that the Afghan people will understand that the United States will stand by them," he said.

Karzai said his countrymen "will never forget" the help of U.S. forces over the past decade. He said the partnership agreement shows the United States and Afghanistan will continue to fight terrorism together. The United States promises to seek money from Congress every year to support Afghanistan.

To the troops, he readily conceded continued hardship.

"I know the battle's not yet over," he said. "Some of your buddies are going to get injured. And some of your buddies may get killed. And there's going to be heartbreak and pain and difficulty ahead." He added that his administration is committed to ensuring that once the war is over, veterans will be given their due.

Officials have previously said as many as 20,000 U.S. troops may remain after the combat mission ends, but that still must still be negotiated.

The president's Tuesday night address was coming exactly one year after special forces, on his order, began the raid that led to the killing of bin Laden in Pakistan.

Since then, ties between the United States and Afghanistan have been tested anew by the burning of Muslim holy books at a U.S. base and the massacre of 17 civilians, including children, allegedly by an American soldier.

Obama had gone twice before to Afghanistan as president, most recently in December 2010, and once to Iraq in 2009. All such trips, no matter how carefully planned, carry the weight and the risks of considerable security challenges. Just last month, the Taliban began near-simultaneous assaults on embassies, government buildings and NATO bases in Kabul.

Besides the U.S. troops in Afghanistan, there are 40,000 in coalition forces from other nations.

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Obama’s 2011 Tax Returns Show 20.5 Percent Rate

U.S. President Barack Obama

President Obama paid an effective tax rate of 20.5 percent in 2011, according to tax returns he and first lady Michelle Obama released today. That makes the president’s tax rate lower than Warren Buffett’s secretary, who pays upwards of 35 percent and whom Obama often cites on the campaign trail as justification for increasing taxes on millionaires like Buffett.

But at 20.5 percent, the president paid a markedly higher percentage of his income to the federal government in 2011 than his Republican rival Mitt Romney reported paying in 2010. Despite earning more than $21 million in 2010, Romney’s effective tax rate was a mere 14 percent.


President Obama reported earning about $790,000 last year and paid $162,000 in total taxes. He and the first lady donated $172,000 to charity, or about 22 percent of their adjusted gross income, according to their tax returns. The majority of the first family’s donations went to the Fisher House Foundation which provides scholarships to veterans’ children.

Obama has pushed hard the so-called “Buffett Rule” in campaign speeches this week. The proposed tax reform would require people earning more than $1 million to pay a minimum effective tax rate of 30 percent.

With an income less than $1 million, Obama would not see his tax rate increase under the rule. Romney, on the other hand, would see his rate from 2010 more than double.

The likely GOP nominee has yet to release his tax returns for 2011, a fact the Obama campaign was quick to criticize him for today after the president released his own returns.

“Governor Romney has yet to provide tax returns from the period in which he made hundreds of millions as a corporate buyout specialist, or as governor of Massachusetts, the experience he says qualifies him to be president,” Obama campaign manager Jim Messina said in a statement. ” What does he have to hide?”

Romney’s spokesman Andrea Saul said the former Massachusetts governor will release his 2011 return “when it is filed.”  She knocked Obama for trying to “distract” voters from his economic record by putting the focus on taxes.

“It’s no surprise with the worst job creation record in modern history that President Obama would try to distract Americans from the real issues with a series of sideshows,” Saul said.

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Obama, Netanyahu face struggle over Iran "red lines"

Barack Obama

(Reuters) - President Barack Obama and Israeli Prime Minister Benjamin Netanyahu are deeply at odds over how fast the clock is ticking toward possible military action against Iran's nuclear program, and their talks on Monday are unlikely to change that.

Even though Obama has offered assurances of stiffened U.S. resolve against Iran before the White House meeting, the two allies are still far apart on explicit nuclear "red lines" that Tehran must not be allowed to cross, and they have yet to agree on a time frame for when military action may be necessary.

Obama wants Israel to hold off on attacking Iran's nuclear sites, insisting there is still time for sanctions and diplomacy to work. But he also vowed in a speech on Sunday to the largest U.S. pro-Israel lobby that he would be ready to act militarily - with all "elements of American power" - to prevent the Islamic republic from building an atomic bomb.

Israeli leaders, who see Iran's nuclear advances as a looming existential threat and reserve the right to act alone in self-defense, have made clear they are operating on a far shorter, more urgent timeline.

Their most immediate concern is that Iran be prevented from reaching nuclear weapons capability, not just from developing an actual device, and they worry that time is running out for an effective Israeli attack as Tehran buries its nuclear facilities deeper underground.

While Obama and Netanyahu - who have had a strained relationship - will share intelligence information on Monday, a source close to the administration said there was little reason to believe they would make significant progress toward bridging key differences on a common threshold for military action.

"They'll be looking for mutual understandings and may find a few, but the biggest problem is they're working on different clocks," the source said.

GEOPOLITICAL DRAMA IN U.S. ELECTION YEAR

Obama's meeting with Netanyahu comes amid U.S. fears that Israel might opt to strike Iran on its own if it is not convinced of Washington's determination to do whatever is needed to rein in Tehran's nuclear ambitions. Iran remains defiant but says it wants nuclear technology strictly for peaceful purposes.

The geopolitical drama is being played out in the midst of a U.S. presidential campaign, with Republican presidential contenders accusing the Democratic president of being too tough on Israel and not tough enough with Iran.

Israel comes to Monday's talks with a firm belief that Iran has decided to seek to develop nuclear weaponry and is gathering the necessary components before attempting a "breakout."

Israeli officials maintain that once Iran moves forward, it could enrich uranium to weapons grade and have a rudimentary nuclear device within months, though constructing a deployable warhead would take longer, perhaps until mid-decade.

U.S. officials do not believe the situation is that close to the brink. They say that while Iran may be maneuvering to keep its options open there is no clear intelligence that the country has made a final decision to pursue a nuclear weapon.

Both sides agree that it is impossible to know the full extent of Iranian intentions. American spy agencies are wary about drawing any categorical conclusions after an embarrassing intelligence lapse that led to erroneous accusations of Iraqi nuclear arms work, which the Bush administration used to help justify the 2003 U.S.-led invasion that toppled Saddam Hussein.

Still, Obama - in an Atlantic magazine interview published on Friday - insisted that Iran "is not yet in a position to obtain a nuclear weapon without us having a pretty long lead time in which we will know that they are making that attempt."

And Obama warned in Washington on Sunday against "loose talk" of war with Iran, saying such "bluster" was counterproductive because it has been driving up global oil prices and boosting demand for Iran's oil exports.

That may have been a message to Netanyahu and other Israeli leaders, whose have engaged in a strident exchange of recriminations with Iranian officials in recent months.

Daniel Levy, an analyst at the New America Foundation think tank, said Obama had "offered clarity and commitments on mainstream Israeli concerns without capitulating to the Netanyahu narrative, which is far more dismissive of diplomacy."

Speaking in Ottawa, the right-wing Israeli leader ignored Obama's appeal to let sanctions run their course and focused on the president's insistence on keeping the military option open and backing Israel's right to defend itself.

It was unclear whether Obama's sharpened rhetoric against Iran and calls for restraint by Israel would be enough to delay any Israeli military plans against Tehran, which has called for the destruction of the Jewish state.

Israeli Defense Minister Ehud Barak has warned that Iran is approaching a "zone of immunity," when Tehran is able to shield its nuclear facilities from Israeli air strikes. The United States, however, would still likely have the firepower for a more sustained air assault to destroy the sites.

BEHIND CLOSED DOORS

Obama took a significant step forward in Israel's eyes when, in the Atlantic interview, he ruled out accepting, then acting to "contain," a nuclear-armed Iran.

While U.S. officials insist that Obama will not publicly lay down any new red lines for Iran during Netanyahu's visit, they do not rule out the possibility that the president might try to mollify some Israeli concerns in private.

"They're going to sit down and they're going to talk through the tactics involved," Obama re-election campaign strategist David Axelrod told the ABC "This Week" television program.

Still, U.S. officials doubt that Netanyahu will provide Obama with any guarantee that Israel will consult Washington - its biggest source of military assistance - before launching any strikes on Iran.

Even if Obama assures Netanyahu that the United States has the firepower to deliver a devastating blow to Iran's nuclear program further down the line, the Israelis have made clear they cannot rely on that commitment alone.

One line of thinking within the Obama administration is that keeping it in the dark about any Israeli military plans might be best for the United States since any sign of complicity would inflame anti-American sentiment in the Muslim world.

Dennis Ross, Obama's former Middle East adviser, suggested, however, that the "noise" from Israel over a possible strike was geared more toward pressuring the international community for tightened sanctions than foreshadowing an imminent attack.

"Now that it's an issue of the world against Iran, Israel likes it that way and would not be inclined to act precipitously," Ross said last week.

But others who know Netanyahu well say he is approaching the Iranian challenge with a sense of historic responsibility to ensure Israel's survival, what some have called the "Holocaust factor."

He has made clear that Israel, believed to be the Middle East's only nuclear weapons power, will do what it takes to prevent Iran from getting the bomb.

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Iranian company wants to send toy drone to Obama

Toy-Drone made by Iran

Tehran, Iran (CNN) -- An Iranian non-profit company says it will honor U.S. President Barack Obama's request that Iran return a drone that crashed there last year.

But instead of the actual drone, the company says it will send miniature toy versions. A lot of them.

"We plan to send a full squadron of 12 to the White House for President Obama as a present," said Reza Kioumarsi, a spokesman for the Aaye Art Group, a Tehran-based non-profit, non-governmental company that makes novelty items.

The company is trying to determine what Obama's favorite color is before sending the drones, which are 1/80th the size of the real drone, Kioumarsi said.

In December, Obama said the U.S. has asked Iran to return the highly classified RQ-170 Sentinel drone.

"We've asked for it back. We'll see how the Iranians respond," Obama said at the time.

This is probably not the response Obama was seeking.

Iran has said the country's armed forces had downed the drone near Kashmar, some 225 kilometers (140 miles) from the border with Afghanistan on December.

President Mahmoud Ahmadinejad gave a speech in December that seemed to suggest that Iran wouldn't return it.

"The North Americans at best have decided to give us this spy plane," Ahmadinejad said.

The RQ-170 Sentinel is one of the United States' most sophisticated drones and flies at up to 50,000 feet. It is designed to evade sophisticated air defenses.

One former intelligence official said it's "impossible to see" and discounted Iranian claims that it had been brought down by some form of electronic counter-measures. "It simply fell into their laps," he said -- after satellite communication was lost.

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Pentagon budget cuts will reshape U.S. military

The Pentagon

(Reuters) - The Pentagon unveiled a 2013 budget plan that would cut $487 billion in spending over the next decade by eliminating nearly 100,000 ground troops, mothballing ships and trimming air squadrons in a bid to create a smaller, agile force with a new strategic focus.

The funding request, which includes painful cuts that will be felt across the country, comes at a historic turning point for the military as it winds down 10 years of war in Afghanistan and Iraq and shifts its strategic focus to the Asia-Pacific region and the Middle East.

The budget plan, sharply criticized by some lawmakers, sets the stage for a new struggle between President Barack Obama's administration and Congress over how much the Pentagon should spend on national security as the country tries to curb its trillion-dollar budget deficits.

"Make no mistake, the savings that we are proposing will impact all 50 states and many districts, congressional districts across America," Defense Secretary Leon Panetta told a news conference at the Pentagon on Thursday.

"This will be a test of whether reducing the deficit is about talk or action."

Panetta, previewing a budget to be made public February 13, said he would ask for a $525 billion base budget for the 2013 fiscal year, the first time since before the September 11, 2001, attacks that the Pentagon has asked for less than the previous year. That compares with $531 billion approved this year.

Panetta said he would seek $88.4 billion to support overseas combat operations, primarily in Afghanistan, down from $115 billion in 2012 largely due to the end of the war in Iraq and the withdrawal of U.S. forces there at the end of last year.

Congress ultimately controls the Pentagon's purse strings and regularly intervenes to change the size and detail of military spending as it sees fit. The Defense Department's budget accounts for about 20 percent of total federal spending.

Republican lawmakers who oversee military affairs on Capitol Hill sharply criticized the plan.

Senator John McCain said it "ignored the lessons of history" by imposing massive cuts on the military, and Representative Buck McKeon said it reflected "Obama's vision of an America that is weakened, not strengthened, by our men and women in uniform."

MORE CUTS TO COME?

The 2013 budget is Panetta's first as defense secretary and is the first to take into account the Budget Control Act passed by Congress in August that requires the Pentagon to cut $487 billion in projected spending over the next decade.

The budget plan does not take into account an additional $600 billion in defense cuts that could be required after Congress failed to pass a compromise agreement to cut government spending by $1.2 trillion. The Pentagon could face cuts of another $50 billion a year, starting in 2013, unless Congress changes the law.

Panetta said he hoped once lawmakers understood the sacrifice involved in reducing the defense budget by almost a half a trillion dollars, they would make sure to avoid another $500 billion in additional cuts that would "inflict severe damage to our national defense for generations."

The budget begins to flesh out a new military strategy announced by the Pentagon earlier this month that calls for a shift in focus from the ground wars of the past decade towards efforts to preserve stability in the Asia-Pacific region and the Middle East.

"To ensure an agile and ready force, we made a conscious choice not to maintain more force structure than we could afford to properly train and equip," Panetta said.

The budget plan would provide new challenges for the Pentagon's top suppliers, such as Lockheed Martin, Boeing, General Dynamics, Northrop Grumman and Raytheon. The Arca index of defense stocks closed Thursday down 0.7 percent.

The plan retains but slows the purchase of weapons like Lockheed's F-35 Joint Strike Fighter, the Pentagon's largest procurement program, as well as submarines, amphibious assault ships and other vessels. It would retain a fleet of 11 aircraft carriers.

The Pentagon would boost its emphasis on special operations forces like those who carried out the raid in Pakistan that killed al Qaeda leader Osama bin Laden last year and rescued two aid workers this week from kidnappers in Somalia.

It would also increase its emphasis on cyber operations, expand its work on drone aircraft, go ahead with a long-range bomber and proceed with other weapons that would allow it to project power from a greater distance.

Those capabilities are needed as countries like Iran and China develop arms that could threaten U.S. aircraft carriers in international waters near their shores.

General Martin Dempsey, the top U.S. military officer as chairman of the Joint Chiefs of Staff, warned against "parsing through each cut, each change, to look for a winner or loser," saying the plan should be judged for how it adapts the military to a changing security environment.

While the cuts announced on Thursday would affect all major defense contractors, consultant Loren Thompson said shipbuilders would be hit particularly hard because of the plan to cut 16 vessels from the total planned for the next five years.

The plans could affect work flow at Huntington Ingalls' shipyards in Pascagoula, Mississippi, and Newport News, Virginia.

The size of the active-duty Army would be trimmed to 490,000 over five years from its wartime peak of 570,000 in 2010 and the size of the Marine Corps would fall to 182,000 from its high of about 202,000.

Military pay increases would begin to slow after two more years of growth, and fees would be increased on healthcare benefits for military retirees, those who served more than 20 years, both above and below the age of 65.

In addition, the Pentagon would:

- Delay development of a new ballistic missile submarine by two years.

- Eliminate six of the Air Force's tactical-air fighter squadrons and retire or divest 130 aircraft used for moving troops and equipment.

- Retire seven Navy cruisers and two smaller amphibious ships early, postpone the purchase of a big-deck amphibious ship by one year and postpone the planned purchase of a number of other vessels for several years.

- Eliminate two Army heavy brigades stationed in Europe and compensate by rotating U.S. based units into the region for training and exercises.

- Study the possibility of further reducing the size of U.S. nuclear arsenal.

- Begin a new round of talks on closing bases made unnecessary by the smaller force.

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President Obama: Everybody Must Play By The Same Rules

Barack Obama, US President

WASHINGTON -- President Barack Obama used Tuesday's State of the Union address to lay out a vision of America in which everybody gets a fair shot at economic success and everybody -- including "the wealthy" -- plays by the same rules as the average citizen.

Obama's address, which comes in the midst of a rapidly escalating presidential campaign season, delivered a strong message about the need for social and economic equality and put forward a handful of new policy ideas targeting tax reform, college affordability and clean energy. But by and large, Obama's third State of the Union was focused on proposals for boosting the economy and ensuring protections for the middle class.

"Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same," Obama said. "It's time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody."

Obama laid out some notable new policy proposals, including the creation of a new international minimum tax on U.S. companies making profits overseas; the launching of a new trade enforcement unit that would target unfair trade practices in countries around the world, including China; and a plan to shift federal aid away from colleges that don't keep down tuition costs. He also announced that the Defense Department will make history's largest renewable energy purchase -- totaling 1 gigawatt. The president can use his executive power to make the last item happen.

Ahead of the address, senior administration officials who spoke only on background and wouldn't be quoted, said the underlying message of the speech is that Obama's economic policies have been working and should be continued. The country had already lost 4 million jobs to the recession before Obama came into office and lost another 4 million before his policies took effect, they said. By contrast, Obama's policies have created more than 3 million private sector jobs in the past two years.

The officials also highlighted a new initiative to place 2 million people in jobs through new partnerships with businesses and community colleges. Steve Jobs, the recently deceased CEO of Apple, had pressed Obama for proposals like this in a past meeting, said the officials.

During his remarks, Obama reiterated his support for instituting the "Buffett rule," a concept that he and congressional Democrats have been pushing for months as a way to pay for their legislative priorities. Named after billionaire Warren Buffett, the rule would require people making more than $1 million to pay a minimum effective rate of at least 30 percent.

Warren Buffett's secretary Debbie Bosanek was a guest of the First Lady at the State of the Union. Buffett has made the case that millionaires and billionaires should be taxed at higher rates by pointing out that Bosanek pays a lower effective rate than he does.

"We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by," Obama said. "Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules. What's at stake are not Democratic values or Republican values, but American values. We have to reclaim them."

Other notable attendees at the event included Rep. Gabrielle Giffords (D-Ariz.), who made the trip to Washington, D.C.,two days before she plans to step down to focus on her recovery after being shot in the head in Tucson in Jan. 2011. Giffords' husband, former astronaut Mark Kelly, also attended as a guest of the First Lady.

The president isn't wasting any time when it comes to selling his economic vision to the country. On Wednesday, he'll kick off a three-day tour of five states, Iowa, Arizona, Nevada, Colorado and Michigan, which are key battlegrounds in the upcoming presidential race. The move is a convenient way for Obama to connect his governing activities to his campaigning, which has already gotten off the ground but is not yet operating at full force.

Obama is also slated to sit down with ABC's Diane Sawyer on Thursday for his first post-State of the Union interview. Sawyer is soliciting questions from the public to ask the president.

In the meantime, White House officials will spend the week managing a social media blitz. On Tuesday night, administration officials planned to take questions from the public about the address submitted via Twitter, Facebook and Google+ in front of a live audience -- and to respond to questions in real time via Twitter, using the hashtag #WHChat and #SOTU.

From Wednesday through Friday, senior administration officials will host a marathon of online question and answer sessions via Twitter. Wednesday's panel will focus on general questions about the address. Community-focused discussions with policy advisers will take place Thursday and Friday's Q&A will be directed toward specific policy issues, including health, education and jobs. People who want to participate can ask questions on Twitter with the hashtag #WHChat, and administration officials will respond in real time.

News by Huffingtonpost

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Gingrich victory in South Carolina jolts Republican race

Newt Gingrich

(Reuters) - Republican presidential candidate Newt Gingrich trounced frontrunner Mitt Romney in South Carolina on Saturday in a jarring victory that indicates the party's battle to pick a challenger to President Barack Obama may last months, not weeks.

Gingrich's come-from-behind triumph in the primary in the conservative southern state injects unexpected volatility into a Republican nominating race that until this week appeared to be a coronation for Romney, the former Massachusetts governor and private-equity chief.

Instead, voters in South Carolina rejected Romney's pitch that he is the best bet to fix a broken U.S. economy and defeat Obama, a Democrat, in the November 6 election.

Three different candidates - Gingrich, Romney and former U.S. senator Rick Santorum - now have won the first three contests in the state-by-state battle for the Republican presidential nomination to face Obama.

Gingrich's triumph may lead to a protracted battle of attrition as Republican candidates spend millions of dollars to tear each other down rather than uniting behind a standard-bearer to take back the White House.

With nearly all the votes counted, Gingrich had pulled in 40 percent of the vote, followed by Romney with 28 percent, networks reported. Santorum was in third with 17 percent and U.S. congressman Ron Paul in fourth with 13 percent.

The next contest is the Florida primary on January 31.

Riding a series of feisty debate performances, the former speaker of the House of Representatives captured the lingering unease of conservative voters in South Carolina who view Romney's moderate past and shifting policy stances with suspicion. Gingrich argued that he would be able to better articulate the party's conservative ideals.

South Carolina was a stunning turnaround for Gingrich, whose campaign barely survived after top staff quit last June and stumbled to a disappointing finish just three weeks ago in Iowa, the first Republican nominating contest. He finished fourth in both Iowa and New Hampshire a week later as conservatives split their votes among several candidates.

Gingrich contrasted his sometimes-chaotic management style with Romney's buttoned-down approach, arguing that his campaign was powered by ideas rather than logistics. Romney is one of the wealthiest candidates ever to run for president and his campaign is well financed.

"We don't have the kind of money that at least one of the candidates have. But we do have ideas and we do have people," Gingrich told supporters in a 22-minute tirade against Obama, the news media, judges and other "elites."

Romney acknowledged that there will be a long primary season. He said he would continue to run on his business record and paint Gingrich as a creature of Washington in the weeks ahead.

"I don't shrink from competition, I embrace it," Romney told supporters. "I believe competition makes us all better. I know it's making our campaign stronger."

Obama, who does not face a primary challenger, will have his turn in the spotlight on Tuesday with his State of the Union address. In a message to supporters on Saturday, he said the speech would focus on "building an economy that works for everybody, not just a wealthy few."

ON TO FLORIDA

Heading into Florida, Romney starts off with a wide lead in the polls and a distinct edge in logistics and fund-raising, which will be crucial in a state with 10 separate media markets.

Campaigns must spend at least $1 million each week to reach voters in the sprawling southern state, according to local political officials. Romney's allies have already spent $5 million, mostly on ads attacking Gingrich. No other candidate has a significant presence in the state.

Animosity between Gingrich and Romney has been festering since December, when a group supporting Romney launched a blitz of negative TV ads in Iowa that ruined Gingrich's campaign there. In South Carolina, a state with a reputation for rough and tumble politics, the gloves came off.

Gingrich attacked Romney's business record at private equity firm Bain Capital and his reluctance to release personal tax information, while Romney pointed to Gingrich's past ethics lapses and alluded to his messy personal life.

South Carolina Republican voters said they were focused on fixing the sluggish economy and finding the strongest candidate to defeat Obama. Some 78 percent said they were "very worried" about the economy and 45 percent said that the most important trait in a candidate was the ability to beat Obama, according to exit polls released by CNN.

Those issues are the twin pillars of Romney's candidacy.

But Gingrich's wide-ranging stump speeches and red-meat attacks against Obama convinced many voters that he had the fire in the belly to take on the incumbent.

"A vote for Newt was a vote against Obama," said Charleston photographer Kim Woods, who voted for Gingrich.

Romney saw his aura of inevitability erode in South Carolina after leading opinion polls by 10 percentage points a week ago. He suffered a setback on Thursday when Iowa officials declared in a recount that he had actually come in second place in that state, instead of winning narrowly as initially announced.

Romney took a swipe at Gingrich for criticizing his conduct at Bain Capital, calling it an "assault on free enterprise."

"Those who pick up the weapons of the left today will find them turned against us tomorrow," Romney told supporters.

Voters said they viewed Romney's business background as an asset. But he waffled this week when asked whether he would release his tax records, and acknowledged that he pays a much lower tax rate than many Americans, around 15 percent.

In his speech, Gingrich took aim at Obama, painting him as a weak president, "truly a danger to the country" with his energy policies and "out of touch with reality." He also lashed the news media and condemned what he called "the growing anti-religious bigotry of the elites" in America.

'PUNCH IN THE MOUTH'

"This is the punch in the mouth/wake up call Romney needed if he wanted to be a strong general election candidate," Republican strategist Ford O'Connell said in a Twitter message, referring to the South Carolina results.

Romney has attacked Gingrich's ties to mortgage giant Freddie Mac and criticized his time in the nation's capital. His campaign also highlighted Gingrich's $300,000 fine due to ethics lapses while serving as House speaker 15 years ago.

The thrice-married Gingrich has fended off publicity about his turbulent marital history. On Thursday, he rejected his second wife's accusation that he had asked her for an "open marriage" while he was having an affair with another woman in the 1990s.

South Carolina has been a tough state for Romney's presidential ambitions. In his previous run for the White House in 2008, Romney finished a poor fourth, with just 15 percent of the vote, behind winner and eventual Republican nominee John McCain. McCain endorsed Romney in the current campaign.

The winner of South Carolina's Republican presidential primary has gone on to win the party's nomination in every presidential election since 1980.

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Wikipedia to shut for 24 hours to stop anti-piracy act

Jimmy Wales, Wikipedia

(Reuters) - Wikipedia, the popular community-edited online encyclopedia, will black out its English-language site for 24 hours to seek support against proposed U.S. anti-piracy legislation that Wikipedia founder Jimmy Wales said threatens the future of the Internet.

The service will be the highest profile name to join a growing campaign starting at midnight Eastern Time on Wednesday that will see it black out its page so that visitors will only see information about the controversial Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA).

The information will urge Wikipedia readers to contact their local congressman to vote against the bills. Other smaller sites leading the campaign include Reddit.com and Cheezeburger.

"This is a quite clumsily drafted legislation which is dangerous for an open Internet," said Wales in an interview.

The decision to black out the site was decided by voting within the Wikipedia community of writers and editors who manage the free service, Wales said. The English language Wikipedia receives more than 25 million average daily visitors from around the world, according to comScore data.

The bills pit technology companies like Google Inc and Facebook against the bill's supporters, including Hollywood studios and music labels, which say the legislation is needed to protect intellectual property and jobs.

The SOPA legislation under consideration in the House of Representatives aims to crack down on online sales of pirated American movies, music or other goods by forcing Internet companies to block access to foreign sites offering material that violates U.S. copyright laws. Supporters argue the bill is unlikely to have an impact on U.S.-based websites.

U.S. advertising networks could also be required to stop online ads, and search engines would be barred from directly linking to websites found to be distributing pirated goods.

Google has repeatedly said the bill goes too far and could hurt investment. Along with other Internet companies such as Yahoo, Facebook, Twitter and eBay, it has run advertisements in major newspapers urging Washington lawmakers to rethink their approach.

White House officials raised concerns on Saturday about SOPA saying they believe it could make businesses on the Internet vulnerable to litigation and harm legal activity and free speech.

"We're happy to see opposition is building and that the White House has started to pay attention," said Wales.

News of the White House's comments prompted a prominent supporter of the bill News Corp Chief Executive Rupert Murdoch to slam the Obama administration.

"So Obama has thrown in his lot with Silicon Valley paymasters who threaten all software creators with piracy, plain thievery," he posted on his personal Twitter account Saturday. News Corp owns a vast array of media properties from Fox TV, the Wall Street Journal to Twentieth Century Fox studios.

Wales said the bill in its current form was too broad and could make it difficult for a site like Wikipedia, which he said relies on open exchange of information. He said the bill also places the burden of proof on the distributor of content in the case of any dispute over copyright ownership.

"I do think copyright holders have legitimate issues, but there are ways of approaching the issue that don't involve censorship," Wales said.

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Romney says he is taxed at around 15 percent rate

 Republican Mitt Romney

(Reuters) - Republican Mitt Romney acknowledged Tuesday that his income tax rate is "probably closer to 15 percent than anything," suggesting that one of the wealthiest people to ever run for U.S. president pays a much lower rate than most Americans.

His comment, a day after Romney agreed for the first time to release his tax returns -- but not until April when they are generally filed -- added fuel to his Republican rivals' calls for him to be more transparent about his finances.

It also drew fire from the Democratic White House and other critics, who said it reflected how Romney, whose estimated net worth is $270 million, is out of touch with the experiences and concerns of typical Americans.

Romney, a former private equity executive and Massachusetts governor, seemed to feed that narrative on Tuesday. He said that he gets speaker fees "from time to time, but not very much."

Annual campaign financial disclosure forms indicate that he was paid more than $374,000 in speaker fees from February 2010 to February 2011.

Romney's estimate of his income tax rate suggested that like many of the wealthiest Americans, he could earn a large chunk of his income from investments - much of it in capital gains.

Because capital gains generally are taxed at 15 percent compared with the top income tax rate of 35 percent on ordinary wages, those with significant income from capital gains often pay lower tax rates than many Americans.

Such disparity in the rates within the U.S. tax code are a sore point for many Americans, even some of the very rich whose rates are relatively low.

Billionaire investor Warren Buffett, for example, has said he paid $6.9 million in federal income taxes on $39.8 million in taxable income in 2010, a rate of 17.4 percent. Buffett has said it's unfair than his tax rate is lower than his secretary's.

Romney is the prohibitive favorite to win the Republican nomination and the right to face Democratic President Barack Obama in the November 6 elections.

On Tuesday, the White House moved quickly to portray Romney as an elitist, which almost certainly will be a theme of Obama's campaign this fall.

"Everybody who's working hard ought to pay their fair share" of taxes, the White House said in a statement. "That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more."

ROMNEY UNDER PRESSURE

Romney has long been reluctant to raise a curtain on his vast financial holdings.

In recent days, Romney's increasingly desperate rivals - former House of Representatives Speaker Newt Gingrich and Texas Governor Rick Perry - repeatedly have questioned whether Romney, in not releasing his tax returns, is hiding something.

Their calls for Romney to release his returns were echoed on Tuesday in a New York Times editorial, which called Romney's "insistence on secrecy impossible to defend now that he appears to be closing in on the nomination and questions have intensified about his personal finances."

During Monday night's Republican presidential debate in Myrtle Beach, Romney said, "I have nothing in (the returns) that suggests there's any problem and I'm happy to" release them around the federal tax filing deadline in mid-April.

"I sort of feel like we are showing a lot of exposure at this point," Romney added. "And if I become our nominee, and what's happened (with past presidential candidates) is people have released them in about April of the coming year, and that's probably what I would do."

FORTUNE INVESTED IN BAIN FUNDS

Tax analysts say Romney may have good reason to be reluctant to release his returns.

His vast fortune is invested in dozens of funds linked to Bain Capital LLC, the powerhouse private equity firm he co-founded and led for 15 years. Several Bain funds have offshore connections and take advantage of tax breaks used only by the U.S. financial elite.

His tax returns could shed light on how Romney and Bain use offshore strategies to avoid taxes, said Daniel Berman, a former U.S. Treasury deputy international tax counsel and now director of tax at Boston University's graduate tax program.

Bain funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong, according to a Reuters analysis of securities filings.

"Certain interests in foreign investment structures would have to be reported on attachments to his return," Berman said.

On capital gains, Romney's tax returns would not reveal any gains that he has not yet realized, even though those gains would be easy for him to lock in at any time, Berman said.

"I remember as a young lawyer being surprised to see tax returns of very successful investors showing net losses - because they were recognizing net losses" but not yet factoring in unrealized gains, Berman said.

Romney's returns also might not spell out how much he benefits from a tax break used by private equity executives called the carried interest loophole.

This rule allows private equity and hedge fund managers to pay the 15 percent capital gains tax rate, rather than the top income tax rate, on a large portion of their earnings.

A SERIES OF ATTACKS

The demands by Gingrich and Perry are their latest attempt to draw attention to Romney's wealth.

They also echo Gingrich and Perry's criticism of Romney's time at Bain, which he left in 1999. Bain was involved in overhauling dozens of companies, and in some cases laid off thousands of workers.

Gingrich, Perry and others have portrayed Romney as a job killer and, as Perry put it, a "vulture" capitalist. The attacks don't seem to have worked, for Romney is still leading in most public opinion polls.

Gingrich continued to pound on the tax return theme Tuesday.

"It's interesting that Romney agreed that he ought to release his income taxes but he doesn't want to do it until April," by which time Romney could have clinched the Republican nomination, Gingrich said during an interview with CBS.

"I think the people of South Carolina ought to know now -- if there's nothing there, why hide it until April? And if there's something there, don't the people of South Carolina deserve to know before Saturday?"

Gingrich added that he would release his tax returns this week. As Texas governor, Perry has released his each year.

Gingrich and Perry are battling former Pennsylvania U.S. senator Rick Santorum to put together enough conservative votes to block Romney's march to the nomination.

Romney won the Iowa caucuses and New Hampshire primary this month - the first two nomination contests - and is favored to win the South Carolina primary Saturday as well as Florida's primary on January 31.

Santorum, thought earlier this month to be Romney's main challenger, has not been as vocal in calls for Romney to release his tax returns.

A Santorum aide said that he was unsure whether Santorum would press Romney on the matter, but said, "We've been a pretty staunch advocate of airing out all the laundry now."

"We don't need any surprises," the aide said. "We need to know now."

The Romney campaign dismissed the latest calls to release his tax returns as a sign of desperation.

"This is pasta politics," Eric Fehrnstrom, a senior Romney adviser, said. Gingrich is "throwing spaghetti against the wall to see what sticks."

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Iran sends rare letter to U.S. over killed scientist

Mahmoud Ahmadinejad

(Reuters) - Iran said on Saturday it had evidence Washington was behind the latest killing of one of its nuclear scientists, state television reported, at a time when tensions over the country's nuclear program have escalated to their highest level ever.

In the fifth attack of its kind in two years, a magnetic bomb was attached to the door of 32-year-old Mostafa Ahmadi-Roshan's car during the Wednesday morning rush-hour in the capital. His driver was also killed.

U.S. Secretary of State Hilary Clinton denied responsibility and Israeli President Shimon Peres said Israel had no role in the attack, to the best of his knowledge.

"We have reliable documents and evidence that this terrorist act was planned, guided and supported by the CIA," the Iranian foreign ministry said in a letter handed to the Swiss ambassador in Tehran, state TV reported. The Swiss embassy represents U.S. interests in a country where Washington has no diplomatic ties.

The spokesman for Iran's Joint Armed Forces Staff, Massoud Jazayeri, said: "Our enemies, especially America , Britain and the Zionist regime (Israel), have to be held responsible for their actions."

Iran in the past has accused Israel of causing a series of spectacular and sometimes bloody mishaps to its nuclear programme. Israeli officials do not comment on any involvement in those events, although some have publicly expressed satisfaction at the setbacks.

Feeling the heat from unprecedented new sanctions, Iran's clerical establishment has brandished its sword by threatening to block the main Mid-East oil shipping route, starting to enrich uranium at an underground bunker and sentencing an Iranian-American citizen to death on spying charges.

State TV said a "letter of condemnation" had also been sent to Britain, saying the killing of Iranian nuclear scientists began after the head of Britain's MI6 spy service announced intelligence operations against states seeking nuclear weapons.

The West says Iran's nuclear programme is aimed at building a bomb. Tehran says it has the right to peaceful nuclear power.

Tehran has urged the U.N. Security Council and Secretary-General Ban Ki-moon to condemn the latest killing.

After years of international sanctions that had little impact on Iran, U.S. President Barack Obama signed new measures on New Year's Eve that, if fully implemented, would make it impossible for most countries to pay for Iranian oil.

Washington is requiring that countries gradually reduce their purchases of Iranian oil in order to receive temporary waivers from the sanctions.

The European Union is expected to unveil similar measures next week, and announce a gradual oil embargo among its member states, who collectively buy about a fifth of Iran's exports.

The combined measures mean Iran may fail to sell all of the 2.6 million barrels a day of exports it relies on to feed its 74 million people. Even if it finds buyers, it will have to offer steep discounts, cutting into its desperately-needed revenue.

On Tuesday shipping sources told Reuters Iran was storing an increasing supply of oil at sea - as much as 8 million barrels - and was likely to store more as it struggles to sell it.

Iran denies it is having trouble: "There has been no disruption in Iran's crude exports through the Persian Gulf ... We have not stored oil in the Gulf because of sanctions as some foreign media reported," oil official Pirouz Mousavi told the semi-official Mehr news agency on Friday.

The sanctions are causing real hardship on the streets, where prices for basic imported goods are soaring, the rial currency has plummeted and Iranians have been flocking to sell rials to buy dollars to protect their savings.

The pain comes less than two months before a parliamentary election, Iran's first since a presidential vote in 2009 that was followed by eight months of street demonstrations.

Iran's authorities successfully put down that revolt by force, but since then the "Arab Spring" has shown the vulnerability of authoritarian governments in the region to protests fueled by anger over economic difficulty.

CLASH THREAT

Iran has threatened to block the Strait of Hormuz leading to the Gulf if sanctions are imposed on its oil exports, and has threatened to take unspecified action if Washington sails an aircraft carrier through the strait, an international waterway.

Military experts say Tehran can do little to fight the massive U.S.-led fleet that guards the strait, but the threats raise the chance of a miscalculation that could lead to a military clash and a global oil crisis.

The Pentagon said on Friday that small Iranian boats had approached close to U.S. vessels in the strait last week, although it said it did not believe there was "hostile intent."

The United States and Israel have not ruled out military action if diplomacy fails to resolve the nuclear dispute. Iran says it would retaliate if attacked.

The tension has caused spikes in global oil prices in recent weeks, although prices eased at the close of last week's trading on the prospect of reduced demand in economically stricken European countries. Brent crude fell 82 cents to settle at $110.44 a barrel on Friday.

The chances for an imminent easing of tension look even more remote as the nuclear deadlock continues because of Iran's refusal to halt the sensitive nuclear work.

Last week Iran began enriching uranium underground - the most controversial part of its nuclear programme - at a bunker deep below a mountain near the Shi'ite holy city of Qom.

Nuclear talks with major powers collapsed a year ago. Iran says it wants the talks to resume, but the West says there is no point unless it is willing to discuss a halt to uranium enrichment, which can be used to make material for a bomb.

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Iran blast kills nuclear scientist

Bomb kills Iran nuclear scientist

(Reuters) - An Iranian nuclear scientist was blown up in his car by a motorbike hitman, prompting Tehran to blame Israeli and U.S. agents but insist the killing would not derail a nuclear program that has raised fears of war and threatened world oil supplies.

The fifth daylight attack on technical experts in two years, the magnetic bomb delivered a targeted blast to the door of 32-year-old Mostafa Ahmadi-Roshan's car during Wednesday's morning rush-hour. The chemical engineer's driver also died, Iranian media said, and a passer-by was slightly hurt.

Israel, whose military chief said on Tuesday that Iran could expect to suffer more mysterious mishaps, declined comment. The White House, struggling for Chinese and Russian help on economic sanctions, denied any U.S. role and condemned the attack.

While Israeli or Western involvement seemed eminently plausible to independent analysts, a role for local Iranian factions or other regional interests engaged in a deadly shadow war of bluff and sabotage could not be ruled out.

The killing, which left debris hanging in trees and body parts on the road, came in a week of heightened tension:

Iran has started an underground uranium enrichment plant and sentenced an American to death for spying; Washington and Europe have stepped up efforts to cripple Iran's oil exports for its refusal to halt work that the West says betrays an ambition to build nuclear weapons. Iran says its aims are entirely peaceful.

Tehran has threatened to choke the West's supply of Gulf oil if its exports are hit by sanctions, drawing a U.S. warning that its navy was ready to open fire to prevent any blockade of the strategic Strait of Hormuz, through which 35 percent of the world's seaborne traded oil passes.

Secretary of State Hillary Clinton said Iran's threats to close the strait were "provocative and dangerous" and repeated the White House denial of any U.S. involvement in the killing of Ahmadi-Roshan.

In Tokyo on Thursday, Japanese Finance Minister Jun Azumi pledged after talks with U.S. Treasury Secretary Timothy Geithner to steadily reduce oil imports from Iran in support of U.S. sanctions on Tehran over its nuclear program.

Geithner welcomed Tokyo's cooperation, which could be an encouraging sign for U.S. policy after China, a big buyer of Iranian crude, and Russia rebuffed U.S. appeals to starve Iran of much-needed revenue from oil sales.

On a visit to Cuba on Wednesday, Iranian President Mahmoud Ahmadinejad said nothing about the bomb attack but flashed the victory sign and said Iran had done nothing to warrant enmity from its enemies.

"Have we assaulted someone? Have we wanted more than we should have? Never, never. We have only asked to speak about and establish justice," said Ahmadinejad.

Analysts saw the latest assassination, which would have taken no little expertise, as less a reaction to recent events than part of a longer-running, covert effort to thwart Iran's nuclear development program that has also included suspected computer viruses and mystery explosions.

While fears of war have forced up oil prices, the region has seen periods of saber-rattling and limited bloodshed before without reaching all-out conflict. But a willingness in Israel, which sees an imminent Iranian atom bomb as a threat to its existence, to attack Iranian nuclear sites, with or without U.S. backing, has heightened the sense that a crisis is coming.

"HEINOUS ACT"

The Atomic Energy Organization of Iran, which has failed to persuade the West that its quest for nuclear power has no hidden military goal, said the killing of Ahmadi-Roshan would not deter it: "We will continue our path without any doubt ... Our path is irreversible," it said in a statement carried on television.

"The heinous acts of America and the criminal Zionist regime will not disrupt our glorious path ... The more you kill us, the more our nation will awake."

First Vice-President Mohammad Reza Rahimi, quoted by IRNA news agency, said: "Iran's enemies should know they cannot prevent Iran's progress by carrying out such terrorist acts."

Iran's leaders, preparing for the first national election since a disputed presidential vote in 2009 brought street protests against 32 years of clerical rule, are struggling to contain internal tensions. Defiance of Israel and Western powers plays well with many who will vote in March.

In Washington, White House spokesman Tommy Vietor said: "The United States had absolutely nothing to do with this ... We strongly condemn all acts of violence, including acts of violence like what is being reported today."

Israel, which has a history of covert killings abroad, declined comment, though army spokesman Yoav Mordechai wrote on Facebook: "I don't know who settled the score with the Iranian scientist, but I am definitely not shedding any tears."

MOTORCYCLE HITMAN

The attack bore some of the hallmarks of sophisticated intelligence agencies capable of circumventing Iran's own extensive security apparatus and apparently taking care to limit the harm to passers-by.

While witnesses spoke of a frighteningly loud explosion and parts of the Peugeot 405 ended up in the branches of the trees lining Gol Nabi Street, much of the car was left intact. This suggested a charge designed to be sure of both killing the occupants and preventing serious injury to others.

Witnesses said the motorcycle, from which the rear pillion passenger reached out to stick the device to the side of the car, made off into the heavy commuter traffic.

Though the scientist killed -- the fourth in five such attacks since January 2010 -- was only 32, Iranian media described him as having a role overseeing uranium enrichment at Natanz underground site. The semi-official news agency Mehr said Ahmadi-Roshan had recently met officials of the U.N. nuclear watchdog, the International Atomic Energy Agency.

At the IAEA in Vienna, where a spokeswoman condemned the killing, officials could not confirm knowing of him.

Analysts say that killing scientists -- especially those whose lack of personal protection suggests a relatively junior role -- is unlikely to have much direct impact on Iran's nuclear program, which Western governments allege is seeking to enrich enough uranium highly enough to let it build weapons.

COVERT WAR

Sabotage -- like mysterious reported explosions at military facilities or the Stuxnet computer virus widely suspected to have been deployed by Israel and the United States to disrupt nuclear facilities in 2010 -- may have had more direct effects.

However, assassinations may be intended to discourage Iranians with nuclear expertise from working on the program.

Bruno Tertrais from France's Strategic Research Foundation said: "It certainly has a psychological effect on scientists working on the nuclear program."

He cautioned, however, against assuming that Israel, the United States or both were behind the latest attack.

Trita Parsi, a U.S.-based expert on Iran, said the killing might, along with the heightened rhetoric of recent weeks, be part of a pattern ahead of a possible resumption of negotiations on Iran's nuclear program; some parties may want to improve their bargaining position, others may see violence as a way of thwarting renewed negotiations altogether, Parsi said.

Last month, Iran signaled a willingness to return to a negotiating process which stalled a year ago, though Western officials say a new round of talks is far from certain yet.

SANCTIONS CAMPAIGN

Iran's decision to carry out enrichment work deep underground in the once undeclared plant at Fordow, near the holy Shi'ite city of Qom, could make it harder for U.S. or Israeli forces to carry out veiled threats to use force against Iranian nuclear facilities. The move to Fordow could reduce the time available for diplomacy to avert any attack.

The announcement on Monday that enrichment -- a necessary step to make uranium into nuclear weapons -- had begun at Fordow has given added impetus to Western efforts to impose an oil export embargo intended to pressure Tehran to halt enrichment.

Iran, a signatory to the treaty banning the spread of nuclear weapons, says it is entitled to conduct peaceful research and denies any military nuclear aims. Its adversaries say its failure to take up their offers of help with civilian technology undermine the credibility of its position.

Oil prices have firmed 5 percent since U.S. President Barack Obama moved on New Year's Eve to block bank payments for oil to Iran. The European Union is expected this month to impose a ban on its states buying oil from Tehran, and other major customers have been looking for alternative supplies.

In Iran, the new U.S. sanctions have started to bite.

The rial currency has lost 20 percent of its value against the dollar in the past week and Iran has threatened to shut the Strait of Hormuz.

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Romney eyes New Hampshire win despite late attacks

Romney in talking

(Reuters) - Mitt Romney was poised to take a big step toward the Republican U.S. presidential nomination on Tuesday by capturing New Hampshire, hoping to ride out last-minute attacks labeling him a corporate raider who enjoyed firing workers.

The former governor of neighboring Massachusetts carried a sizeable lead in polls into voting day, a sufficient cushion that should force rivals Ron Paul, Jon Huntsman, Newt Gingrich and Rick Santorum into a battle for second place.

Romney, 63, would be the first Republican who is not an incumbent president to win the first two early voting states, after his slim eight-vote victory over former Pennsylvania Senator Santorum a week ago in the Iowa caucuses.

A more resounding win would provide momentum going into South Carolina on January 21 and Florida on January 31. He leads in polls of both states and victories there could all but sew up his nomination to face Democratic President Barack Obama in the November 6 general election.

A Suffolk University/7 News tracking poll on Tuesday showed Romney with 37 percent support among New Hampshire voters, versus 18 percent for Paul, 16 percent for Huntsman, 11 percent for Santorum, 9 percent for Gingrich and 1 percent for Texas Governor Rick Perry.

Seven percent of voters were undecided in the telephone survey on Sunday and Monday, which had an error margin of 4.4 percentage points.

The same poll on Monday had Romney at 33 percent, Paul at 20 percent, Huntsman with 13 percent, Gingrich at 11, Santorum 10 and undecided at 12 percent.

"You're going to make a big statement tomorrow, let's take it to the next step, give me the boost I need, I hope," said Romney in Bedford on Monday night at his final rally of the day.

It was unclear how much damage had been done by a mess of his own making in which Romney declared "I like being able to fire people who provide services to me," in discussing the need for greater competition between health insurance companies.

Romney's opponents seized on the comment as evidence that the former venture capitalist is an out-of-touch politician and coupled it with attacks over his record at Bain Capital, a firm that bought companies and restructured them.

"Governor Romney enjoys firing people. I enjoy creating jobs," Huntsman said.

In a sharp departure for a party known as friendly to business, Republicans seeking to slow Romney sounded more like populists as they bashed his work as a venture capitalist.

Former House Speaker Gingrich, brooding over negative attacks from Romney and his backers that knocked him out of the front-runner position, has launched the toughest onslaught.

"Mitt Romney was not a capitalist during his reign at Bain. He was a predatory corporate raider," a video produced by a pro-Gingrich group said.

New Hampshire voting stations close at 7 p.m. EST (midnight GMT). About 250,000 people are expected to vote in the Republican primary while 75,000 are likely to vote to endorse Obama's re-election.

In Dixville Notch, the tiny village that traditionally votes at midnight to kick off New Hampshire first-in-the-nation primary, the nine voters were split at two votes each for Romney and Huntsman.

WHO CAN DEFEAT OBAMA?

Some voters expressed strong support for Romney.

"I saw him work as a businessman, he sees what needs to be done and gets it done," said nurse Dennis Hamson, 58, who was voting in Londonderry early on Tuesday.

But not everyone was happy about voting for him.

Eli Haykinson of Bedford said he did not want to vote for Romney but might have to because he could have the best chance to defeat Obama. "I personally don't like his huge campaign style. You don't really get to feel him at all," Haykinson said.

Romney's rivals were mostly waging a fierce battle to sway undecided voters their way and win second place. "He's a homeboy. He's been here for a whole lot of years... you serve in the neighboring state as governor, you've got a lot of advantages in terms of name recognition," Huntsman said on MSNBC.

Both libertarian U.S. Representative Paul and Huntsman, a former Utah governor who was the U.S. ambassador to China, have been on the rise in recent days.

Santorum, who nearly won Iowa by appealing to social conservatives, has not seen that message resonate in New Hampshire.

Voter Luke Breen, 52, a financial analyst voting in Londonderry, where many residents commute to Boston, said he would not support a candidate who seemed intolerant and had backed Huntsman.

"He seemed to be more worldly," he said. "I know gay people and everyone has to have gay rights under our constitution."

Santorum and Perry, along with Gingrich, are looking ahead to South Carolina to challenge Romney.

Romney leads there for now but Gingrich backers have launched $3.4 million worth of ads in South Carolina to try to slow him down in the more conservative southern state.

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