Google’s fourth quarter results shine after ad rate decline slows

SAN FRANCISCO (Reuters) – Revenue from Google Inc’s core Internet business outpaced many analysts’ expectations during the crucial holiday quarter and advertising rates fell less than in previous periods, pushing its shares up more than 4 percent.

The world’s largest Internet search company introduced new product listings during the fourth quarter – typically its strongest – and also benefited from business growth in international markets, analysts said.

Excluding traffic-acquisition costs, the business generated net revenue of $ 9.83 billion, up from $ 8.13 billion a year earlier, Google reported on Tuesday. That surpassed a $ 9.6 billion average forecast from six analysts polled by Reuters.

“Business looked really strong, especially from a profitability perspective. They really grew their margins in the core business,” said Sameet Sinha, an analyst with B. Riley Caris. “Most of that strength seems to be coming from international markets which grew revenues quite substantially: up 23 percent year over year, versus the 15 percent growth in the third quarter.”

Average cost-per-click, a critical metric that denotes the price advertisers pay Google, declined 6 percent from a year ago, the fifth consecutive quarter of decline.

Google executives told analysts on a conference call that the company had focused on improving the metric – shoring up margins – while lowering the overall growth rate of paid clicks in the holiday quarter.

“Click prices are still declining, but it’s better than expected,” said BGC Partners analyst Colin Gillis.

MOTOROLA MOBILITY “STILL LOSING MONEY”

Consolidated net income in the fourth quarter was $ 2.89 billion or $ 8.62 per share, compared with $ 2.71 billion, or $ 8.22 per share, in the year-ago period when Google had not yet acquired Motorola.

Excluding certain items, Google said it earned $ 10.65 per share in the fourth quarter.

“The core business is a great business and the fourth-quarter is always a time for Google to shine. However, Motorola is still losing money and click rates still declined. They only declined 6 percent, but go back four or five quarters and click prices were improving. So mobile is still pressuring click prices,” Gillis said.

The company posted consolidated revenue – which includes its Motorola Mobility mobile phone business but not the television set-top box business it recently agreed to sell – of $ 14.42 billion on Tuesday.

Motorola Mobility had an operating loss of $ 353 million during the quarter.

Shares of Google were up roughly 4.5 percent at $ 734.46 in after-hours trading on Tuesday.

(Reporting By Alexei Oreskovic; Editing by Bernard Orr)

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PEOPLE's Music Critic: Why We're Upset About Beyoncé's Lip-Synching Drama

By Chuck Arnold

01/22/2013 at 08:40 PM EST

Did she lip-synch or didn't she?

That's the question surrounding Beyoncé after reports surfaced that she didn't sing "The Star-Spangled Banner" live at yesterday's presidential inauguration.

A spokesperson for the U.S. Marine Band, which backed the pop diva at the ceremony, said Tuesday that Mrs. Jay-Z decided to use a previously recorded vocal track before delivering the national anthem, but later on another spokesperson, this one for the Pentagon, said there was no way of knowing whether the 16-time Grammy winner was guilty of lip-synching or not.

Should it matter? Let's remember that Whitney Houston, in what is widely considered one of the best renditions of "The Star-Spangled Banner" of all time, didn't sing it live either at the 1991 Super Bowl.

There are all sorts of technical reasons why it can be challenging to perform a song as difficult as this on such a large scale, and there are many extenuating circumstances that could have played a role in any decision to lip-synch. Certainly no one is questioning whether Beyoncé – who, in removing her earpiece midway through, may have been experiencing audio problems – has the chops to sing it.

Lip-synching – or at least singing over pre-recorded vocal tracks – has long been acceptable for dance-driven artists like Madonna, Janet Jackson and Britney Spears, whose emphasis on intense, intricate choreography makes it hard to execute the moves fans have come to expect while also singing live. Huffing and puffing into the microphone or barely projecting for the sake of keeping it real just isn't gonna cut it. Of course, there have been other instances – such as Ashlee Simpson's 2004 Saturday Night Live debacle – where faking it crossed the line.

Surely there wouldn't be the same controversy about Beyoncé had she been hoofing across the stage performing "Single Ladies (Put a Ring on It)" on one of her tour stops. But this was the presidential inauguration, the national anthem, and there was no choreography involved.

Some things have to remain sacred, and for "the land of the free and the home of the brave," this was one of them.

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Flu season fuels debate over paid sick time laws

NEW YORK (AP) — Sniffling, groggy and afraid she had caught the flu, Diana Zavala dragged herself in to work anyway for a day she felt she couldn't afford to miss.

A school speech therapist who works as an independent contractor, she doesn't have paid sick days. So the mother of two reported to work and hoped for the best — and was aching, shivering and coughing by the end of the day. She stayed home the next day, then loaded up on medicine and returned to work.

"It's a balancing act" between physical health and financial well-being, she said.

An unusually early and vigorous flu season is drawing attention to a cause that has scored victories but also hit roadblocks in recent years: mandatory paid sick leave for a third of civilian workers — more than 40 million people — who don't have it.

Supporters and opponents are particularly watching New York City, where lawmakers are weighing a sick leave proposal amid a competitive mayoral race.

Pointing to a flu outbreak that the governor has called a public health emergency, dozens of doctors, nurses, lawmakers and activists — some in surgical masks — rallied Friday on the City Hall steps to call for passage of the measure, which has awaited a City Council vote for nearly three years. Two likely mayoral contenders have also pressed the point.

The flu spike is making people more aware of the argument for sick pay, said Ellen Bravo, executive director of Family Values at Work, which promotes paid sick time initiatives around the country. "There's people who say, 'OK, I get it — you don't want your server coughing on your food,'" she said.

Advocates have cast paid sick time as both a workforce issue akin to parental leave and "living wage" laws, and a public health priority.

But to some business owners, paid sick leave is an impractical and unfair burden for small operations. Critics also say the timing is bad, given the choppy economy and the hardships inflicted by Superstorm Sandy.

Michael Sinensky, an owner of seven bars and restaurants around the city, was against the sick time proposal before Sandy. And after the storm shut down four of his restaurants for days or weeks, costing hundreds of thousands of dollars that his insurers have yet to pay, "we're in survival mode."

"We're at the point, right now, where we cannot afford additional social initiatives," said Sinensky, whose roughly 500 employees switch shifts if they can't work, an arrangement that some restaurateurs say benefits workers because paid sick time wouldn't include tips.

Employees without sick days are more likely to go to work with a contagious illness, send an ill child to school or day care and use hospital emergency rooms for care, according to a 2010 survey by the University of Chicago's National Opinion Research Center. A 2011 study in the American Journal of Public Health estimated that a lack of sick time helped spread 5 million cases of flu-like illness during the 2009 swine flu outbreak.

To be sure, many employees entitled to sick time go to work ill anyway, out of dedication or at least a desire to project it. But the work-through-it ethic is shifting somewhat amid growing awareness about spreading sickness.

"Right now, where companies' incentives lie is butting right up against this concern over people coming into the workplace, infecting others and bringing productivity of a whole company down," said John A. Challenger, CEO of employer consulting firm Challenger, Gray & Christmas.

Paid sick day requirements are often popular in polls, but only four places have them: San Francisco, Seattle, Washington, D.C., and the state of Connecticut. The specific provisions vary.

Milwaukee voters approved a sick time requirement in 2008, but the state Legislature passed a law blocking it. Philadelphia's mayor vetoed a sick leave measure in 2011; lawmakers have since instituted a sick time requirement for businesses with city contracts. Voters rejected a paid sick day measure in Denver in 2011.

In New York, City Councilwoman Gale Brewer's proposal would require up to five paid sick days a year at businesses with at least five employees. It wouldn't include independent contractors, such as Zavala, who supports the idea nonetheless.

The idea boasts such supporters as feminist Gloria Steinem and "Sex and the City" actress Cynthia Nixon, as well as a majority of City Council members and a coalition of unions, women's groups and public health advocates. But it also faces influential opponents, including business groups, Mayor Michael Bloomberg and City Council Speaker Christine Quinn, who has virtually complete control over what matters come to a vote.

Quinn, who is expected to run for mayor, said she considers paid sick leave a worthy goal but doesn't think it would be wise to implement it in a sluggish economy. Two of her likely opponents, Public Advocate Bill de Blasio and Comptroller John Liu, have reiterated calls for paid sick leave in light of the flu season.

While the debate plays out, Emilio Palaguachi is recovering from the flu and looking for a job. The father of four was abruptly fired without explanation earlier this month from his job at a deli after taking a day off to go to a doctor, he said. His former employer couldn't be reached by telephone.

"I needed work," Palaguachi said after Friday's City Hall rally, but "I needed to see the doctor because I'm sick."

___

Associated Press writer Susan Haigh in Hartford, Conn., contributed to this report.

___

Follow Jennifer Peltz at http://twitter.com/jennpeltz

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Banks, commodity stocks lift S&P 500 to five-year high

NEW YORK (Reuters) - Bank and commodity shares led the benchmark Standard & Poor's 500 Index to a fresh five-year closing high on Tuesday on hopes that the global economy continues to mend.

Travelers' shares climbed after the insurer's results and lifted the Dow Jones industrial average to a new five-year closing high.

On Friday, both the Dow and the S&P 500 ended at five-year highs after the quarterly earnings season got off to a solid start. On Monday, the U.S. stock market was closed in observance of the Martin Luther King, Jr., holiday.

In Tuesday's session, the market also gained on signals that Republican leaders in the U.S. House of Representatives aim on Wednesday to pass a bill to extend the U.S. debt limit by nearly four months to May 19. The White House welcomed the move, saying it would remove uncertainty about the issue.

Investors, however, were cautious ahead of an increase in earnings reports and as the S&P 500 rose for a fifth straight session.

Jack de Gan, chief investment officer of Harbor Advisory Corp, in Portsmouth, New Hampshire, said better economic numbers in the United States and China, as well as more stabilization in Europe, were driving buyers into sectors associated with economic growth.

"Any (bearish) news could turn us down for a day or so," he said, referring to the recent string of gains.

Freeport-McMoRan Copper & Gold led gains in the materials sector after it reported a 16 percent rise in fourth-quarter profit on higher production. Shares gained 4.6 percent to $35.19.

The Dow Jones industrial average <.dji> rose 62.51 points, or 0.46 percent, to 13,712.21 at the close. The S&P 500 <.spx> gained 6.58 points, or 0.44 percent, to 1,492.56. The Nasdaq Composite <.ixic> added 8.47 points or 0.27 percent, to 3,143.18.

Tuesday's session marked the highest closes for both the Dow and the S&P 500 since December 2007.

Technology shares underperformed as concerns about Apple's ability to continue to grow at hyper speed and a weak outlook from Intel Corp diminished optimism about the sector's prospects. The S&P technology index <.splrct> added 0.16 percent for the day. In comparison, the S&P energy sector index <.spny>, the S&P financials index <.spsy> and the S&P basic materials index <.splrcm> each gained 0.9 percent.

But Google shares rose 4.8 percent to above $736 in extended-hours trading after the world's No. 1 search engine reported a jump in fourth-quarter revenue. Shares of IBM added more than 4 percent to trade above $204 after the world's largest technology services company reported earnings and revenue that beat estimates.

"We expected Q4 for many tech vendors would be weak because we were expecting a lot of companies sitting on their wallets until it became clear what was going to become of the fiscal cliff," Forrester analyst Andrew Bartels said about IBM.

"Given the fact it's Q4 and the cloud of fiscal cliff within it, it's a positive indication that especially tech software will be doing better in the next couple of months."

During the regular session, shares of blue chips Travelers, DuPont

, and Verizon Communications rose following earnings.

Travelers rose 2.2 percent to $77.95, a closing high. DuPont's shares gained 1.8 percent to $47.82. Verizon's stock rose 0.9 percent to $42.94.

Thomson Reuters data through Tuesday morning showed that of the 74 S&P 500 companies that have reported earnings so far, 62.2 percent have topped expectations, roughly even with the 62 percent average since 1994, but below the 65 percent average over the past four quarters.

Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.6 percent. That estimate is above the 1.9 percent forecast from the start of earnings season, but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.

U.S.-listed shares of Research in Motion rallied 13 percent to $17.90 a day after its chief executive said the Canadian company may consider strategic alliances with other companies after the launch of devices powered by RIM's new BlackBerry 10 operating system.

About 6.2 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below last year's daily average of about 6.45 billion shares.

On the NYSE, advancers outnumbered decliners by a ratio of roughly 9 to 4. On the Nasdaq, five stocks rose for every three that fell.

Signs of improved sentiment toward world growth were also seen in European bond markets. The yield on Portugal's benchmark 10-year note fell below 6 percent for the first time since late 2010 on news that the country was set to tap the bond market this week for the first time since it was bailed out in 2011.

(Reporting by Rodrigo Campos; Additional reporting by Jennifer Saba; Editing by Jan Paschal)

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Algeria Defends Tough Response to Hostage Crisis as Toll Rises

Ramzi Boudina/Reuters

Rescue workers with the coffin of one of the slain hostages.

ALGIERS — The prime minister of Algeria offered an unapologetic defense on Monday of the country’s tough actions to end the Sahara hostage crisis, saying that the militants who had carried out the kidnappings intended to kill all their captives and that the army saved many from death by attacking.

But the assertion came as the death toll of foreign hostages rose sharply, to 37, and as American officials said they had offered sophisticated surveillance help that could minimize casualties, both before and during the military operation to retake a seized gas field complex in the Algerian desert.

At least some of the assistance was accepted, they said, but there were still questions about whether Algeria had taken all available steps to avert such a bloody outcome.

American counterterrorism officials and experts said they would have taken a more cautious approach, using detailed surveillance to gain an information advantage and hopefully outmaneuver the militants. But others declined to second-guess the Algerians, saying events had unfolded so rapidly that the government might have felt it had no choice but to kill the kidnappers, even if hostages died in the process.

The debate over how the Algerians handled one of the worst hostage-taking episodes in recent memory reflects conflicting ideas over how to manage such mass abductions in an age of suicidal terrorist acts in a post-9/11 world.

The Algerians — and some Western supporters — argue that the loss of innocent lives is unavoidable when confronting fanatics who will kill their captives anyway, while others say modern technology provides some means of minimizing the deaths.

At a news conference in Algiers, the prime minister, Abdelmalek Sellal, portrayed the military’s deadly assaults on the Islamist militants who had stormed and occupied an internationally run gas-producing complex last Wednesday in remote eastern Algeria as a matter of national character and pride.

“The whole world has understood that the reaction was courageous,” Mr. Sellal said, calling the abductions an attack “on the stability of Algeria.”

“Algerians are not people who sell themselves out,” he said. “When the security of the country is at stake, there is no possible discussion.”

It was the Algerian government’s first detailed public explanation of its actions during the siege, a brazen militant assault that has raised broad new concerns about the strength of extremists who have carved out enclaves in neighboring Mali and elsewhere in North Africa.

Mr. Sellal said that the 37 foreign workers killed during the episode — a toll much higher than the 23 previously estimated — came from eight countries and that five captives remained unaccounted for. It was unclear how many had died at the hands of the kidnappers or the Algerian Army. The United States said that three Americans were among the dead and that seven had survived.

The prime minister also said that 29 kidnappers had been killed, including the leader, and that three had been captured alive. The militants were from Egypt, Mali, Niger, Mauritania, Tunisia and Canada, he said — an assertion the Canadian government said it was investigating. Mr. Sellal said the group began the plot in Mali and entered Algeria through Libya, close to the site.

Other countries, notably Japan and Britain, have raised concerns about what they considered Algeria’s harsh and hasty response. The United States has not publicly criticized Algeria, which it regards as an ally in the fight to contain jihadist groups in Africa. But law enforcement and military officials said Monday that they almost certainly would have handled such a crisis differently.

First, the United States would have engaged in longer discussions with the captors to identify the leaders and buy time, the officials said. In the meantime, the Pentagon, the C.I.A. and possibly allied security services could have moved surveillance drones, high-altitude reconnaissance aircraft and electronic eavesdropping equipment into place to help identify the locations of the hostages and the assailants.

“It would have been a precision approach as opposed to a sledgehammer approach,” said Lt. Gen. Frank Kearney, a retired deputy commander of the United States military’s Special Operations Command.

Adam Nossiter reported from Algiers, and Eric Schmitt from Washington. Reporting was contributed by Hadjer Guenanfa from Algiers, Steven Erlanger and Scott Sayare from Paris, Alan Cowell from London, and Rick Gladstone from New York.

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Sony to sell new Xperia tablet in Japan: Nikkei

(Reuters) – Sony Corp’s Sony Mobile Communications Inc said it will sell the new version of its Xperia tablet in Japan this spring, the Nikkei reported, citing Kyodo News.

The Xperia Tablet Z, whose price has not been announced, has a 10.1-inch display, is 6.9 mm thin and weighs 495 grams, according to the company’s website.

Rival Google Inc’s Nexus 10 tablet is 8.9 mm thick, while Apple Inc’s iPad mini measures 7.9 mm.

Sony halted sales of Xperia in October, a month after launch, after discovering gaps between the screen and the case that made some of the machines susceptible to water damage.

The Nikkei reported on Sunday that Japanese smartphone makers seem to be regaining some market share they lost to companies like Apple and Samsung Electronics Co.

(Reporting by Krithika Krishnamurthy in Bangalore; Editing by Joyjeet Das)

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Vera Wang Reveals Details of Michelle Kwan's Wedding Dress

By Cynthia Wang

01/21/2013 at 07:00 PM EST

Michelle Kwan and Clay Pell

Courtesy of Caitlin Maloney

Although she was a singles figure skater throughout her successful career, Michelle Kwan did have one steadfast partner on the ice – fashion designer Vera Wang.

"I wore so many skating dresses designed by her, whole skating shows and everything," Kwan, 32, tells PEOPLE. "I have a long relationship with her."

And that made picking a wedding dress designer a fairly easy decision.

For Kwan's Rhode Island nuptials on Jan. 19 to Clay Pell, 31, Wang put plenty of consideration into her creation.

"She is marrying someone whose family has a political history, and Michelle is living and working in Washington, D.C.," the designer says. "[The dress] had to have a certain dignity and a certain classicism, and I think it was a lot about a new way of looking at tradition."

So Wang created an ivory, strapless mermaid gown for Kwan, made with layers of silk organza and featuring lace appliqué.

"The fact that it's got an inordinate amount of handwork in terms of lace is really a tribute to the art of hand-piecing lace," Wang says. "There is a princess-slash-queenly level of sophistication and quiet without sacrificing a lot of detail."

To complement the formal wedding gown, Kwan asked Wang what she thought of designing a second dress for the reception. "She said, 'Yeah, I got it,' " Kwan says. "She said, 'First dance, yes, and then you've got to change into something else.' "

Her history with the skater was not lost on Wang. "I'm really very honored and very thrilled that a, Michelle has found the love of her life and b, that I am the one to dress her for that special day just as I did for world championships, national championships, and Olympics," she said. "It's just the ongoing saga of our friendship."

For more on Kwan's wedding, including photos and details from the ceremony, pick up a copy of next week's PEOPLE, on newsstands Friday

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Flu season fuels debate over paid sick time laws

NEW YORK (AP) — Sniffling, groggy and afraid she had caught the flu, Diana Zavala dragged herself in to work anyway for a day she felt she couldn't afford to miss.

A school speech therapist who works as an independent contractor, she doesn't have paid sick days. So the mother of two reported to work and hoped for the best — and was aching, shivering and coughing by the end of the day. She stayed home the next day, then loaded up on medicine and returned to work.

"It's a balancing act" between physical health and financial well-being, she said.

An unusually early and vigorous flu season is drawing attention to a cause that has scored victories but also hit roadblocks in recent years: mandatory paid sick leave for a third of civilian workers — more than 40 million people — who don't have it.

Supporters and opponents are particularly watching New York City, where lawmakers are weighing a sick leave proposal amid a competitive mayoral race.

Pointing to a flu outbreak that the governor has called a public health emergency, dozens of doctors, nurses, lawmakers and activists — some in surgical masks — rallied Friday on the City Hall steps to call for passage of the measure, which has awaited a City Council vote for nearly three years. Two likely mayoral contenders have also pressed the point.

The flu spike is making people more aware of the argument for sick pay, said Ellen Bravo, executive director of Family Values at Work, which promotes paid sick time initiatives around the country. "There's people who say, 'OK, I get it — you don't want your server coughing on your food,'" she said.

Advocates have cast paid sick time as both a workforce issue akin to parental leave and "living wage" laws, and a public health priority.

But to some business owners, paid sick leave is an impractical and unfair burden for small operations. Critics also say the timing is bad, given the choppy economy and the hardships inflicted by Superstorm Sandy.

Michael Sinensky, an owner of seven bars and restaurants around the city, was against the sick time proposal before Sandy. And after the storm shut down four of his restaurants for days or weeks, costing hundreds of thousands of dollars that his insurers have yet to pay, "we're in survival mode."

"We're at the point, right now, where we cannot afford additional social initiatives," said Sinensky, whose roughly 500 employees switch shifts if they can't work, an arrangement that some restaurateurs say benefits workers because paid sick time wouldn't include tips.

Employees without sick days are more likely to go to work with a contagious illness, send an ill child to school or day care and use hospital emergency rooms for care, according to a 2010 survey by the University of Chicago's National Opinion Research Center. A 2011 study in the American Journal of Public Health estimated that a lack of sick time helped spread 5 million cases of flu-like illness during the 2009 swine flu outbreak.

To be sure, many employees entitled to sick time go to work ill anyway, out of dedication or at least a desire to project it. But the work-through-it ethic is shifting somewhat amid growing awareness about spreading sickness.

"Right now, where companies' incentives lie is butting right up against this concern over people coming into the workplace, infecting others and bringing productivity of a whole company down," said John A. Challenger, CEO of employer consulting firm Challenger, Gray & Christmas.

Paid sick day requirements are often popular in polls, but only four places have them: San Francisco, Seattle, Washington, D.C., and the state of Connecticut. The specific provisions vary.

Milwaukee voters approved a sick time requirement in 2008, but the state Legislature passed a law blocking it. Philadelphia's mayor vetoed a sick leave measure in 2011; lawmakers have since instituted a sick time requirement for businesses with city contracts. Voters rejected a paid sick day measure in Denver in 2011.

In New York, City Councilwoman Gale Brewer's proposal would require up to five paid sick days a year at businesses with at least five employees. It wouldn't include independent contractors, such as Zavala, who supports the idea nonetheless.

The idea boasts such supporters as feminist Gloria Steinem and "Sex and the City" actress Cynthia Nixon, as well as a majority of City Council members and a coalition of unions, women's groups and public health advocates. But it also faces influential opponents, including business groups, Mayor Michael Bloomberg and City Council Speaker Christine Quinn, who has virtually complete control over what matters come to a vote.

Quinn, who is expected to run for mayor, said she considers paid sick leave a worthy goal but doesn't think it would be wise to implement it in a sluggish economy. Two of her likely opponents, Public Advocate Bill de Blasio and Comptroller John Liu, have reiterated calls for paid sick leave in light of the flu season.

While the debate plays out, Emilio Palaguachi is recovering from the flu and looking for a job. The father of four was abruptly fired without explanation earlier this month from his job at a deli after taking a day off to go to a doctor, he said. His former employer couldn't be reached by telephone.

"I needed work," Palaguachi said after Friday's City Hall rally, but "I needed to see the doctor because I'm sick."

___

Associated Press writer Susan Haigh in Hartford, Conn., contributed to this report.

___

Follow Jennifer Peltz at http://twitter.com/jennpeltz

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Yen, Asian shares mark time before BOJ decision

TOKYO (Reuters) - The yen and Asian shares marked time on Tuesday as investors awaited the outcome of the Bank of Japan's policy meeting, with expectations running high for bold monetary easing measures aimed at reflating the world's third-largest economy.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.1 percent. The index was pulled down on Monday after briefly touching 17-1/2-month highs as Malaysian stocks suffered their biggest drop in 16 months on election risks.

European shares rose on Monday near two-year highs, with investors betting on an improving economy in Europe. Wall Street was closed for Martin Luther King Jr. Day.

Australian shares <.axjo> were up 0.5 percent to a fresh 20-month high early on Tuesday while South Korean shares <.ks11> opened almost flat.

Japan's benchmark Nikkei average <.n225> opened up 0.2 percent. The Nikkei has faced choppy trading over the past two sessions as the yen became more volatile ahead of the BOJ meeting. Tokyo shares have been rising in tandem with the yen's slide against major currencies. The Nikkei tumbled 1.5 percent on Monday after investors booked profits from the index's 2.9 percent rally on Friday. <.t/>

Early on Tuesday, the dollar inched down 0.1 percent against the yen at 89.51 yen, after touching a fresh 2-1/2-year high of 90.25 yen on Monday. The euro fell 0.3 percent to 119.11 yen, off its peak since May 2011 of 120.73 hit on Friday.

Markets have priced in the BOJ boosting its asset-buying and lending program by another 10 trillion yen and doubling its inflation target to 2 percent. The BOJ will announce its decision after it ends its two-day meeting later on Tuesday.

Sean Callow, senior currency strategist at Westpac bank in Sydney, noted a bit more uncertainty over the policy decision, given speculation about open-ended easing and removing the 0.1 percent floor on short term interest rates.

"The biggest risk for USD/JPY is a cautious 10 trillion yen increase in asset purchases and not much else new aside from the 2 percent target. The best case for USD/JPY bulls is an open-ended commitment to increase quantitative easing until the inflation target is met," Callow said in a note.

There's a perception in markets that even if investors cut their yen short positions in disappointment over the BOJ result, the yen's rebound was likely to be limited relative to its 13 percent decline against the dollar and a 20 percent drop versus the euro over the past two months, mainly due to expectations for more aggressive BOJ easing to drive Japan out of years of deflation and support the economy.

Overall market sentiment was likely to be supported by signs of a compromise to avert a U.S. fiscal crisis.

Republican leaders in the U.S. House of Representatives have scheduled a vote on Wednesday on a nearly four-month extension of U.S. borrowing capacity, aimed at avoiding a fight over the looming federal debt ceiling and shifting their negotiating leverage for spending cuts to other fiscal deadlines.

The Bundesbank said on Monday Germany's economic slump should be short-lived, adding that the euro zone's largest economy could have already bottomed out.

U.S. crude futures were down 0.2 percent to $95.35 a barrel.

Gold was steady around $1,689.81 an ounce.

(Editing by editing by Shri Navaratnam)

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News Analysis: North Africa New Test for U.S. as Terror Cells Spread

WASHINGTON — The bloody resolution of the hostage crisis in Algeria has brought into focus the broader challenges the United States and its allies face in confronting terrorist cells that have taken up sanctuary across northern Africa.

The United States and France have been courting Algeria for months, hoping to secure its support for an international effort to evict Islamic militants out of northern Mali.

But the militants’ advance south, which set off an appeal for the French military intervention by the Mali government, and the hostage-taking at a gas-producing complex in the Sahara to the north have caught the United States by surprise and prompted fresh White House vows to combat terrorism in the region.

In taking on the militants, Western nations are confronting multinational bands that are often able to move with relative freedom across porous African borders. And those cells have many inviting targets to choose from: the entire region is rich with oil, gas, uranium and other international ventures that clearly represent Western interests and in some cases are poorly defended.

Also, with the United States and Britain determined not to send combat troops to North Africa, and the French hoping to avoid an open-ended deployment in Mali, Western nations must rely heavily on the forces of local nations who are not always open to outside advice.

Rudolph Atallah, a former Pentagon counterterrorism official, noted that one major terrorist group in the region, Al Qaeda in the Islamic Maghreb, had slowly branched out across borders. “To dismantle their network, the United States and its allies, African and European, will need a well-thought-out regional strategy,” he said.

Forging that strategy will be far from easy, given those involved. The Algerians have an able, if heavy handed, military, but have not been eager to cooperate extensively with the United States or their neighbors. Libya’s new government appears willing to cooperate but has little ability. Mali has little military ability and any enduring solution needs to be crafted with an eye to internal politics.

The harsh political realities of operating in Africa were evident during the hostage crisis in Algeria. Calculating that Algeria’s cooperation will be needed for the campaign against the militants in Mali, both France and the United States were careful not to complain that the Algerians had mounted their hostage rescue operation without consultation, nor did they complain about the tactics.

“Algeria has an approach which to me, as I see it, is the most appropriate because there could be no negotiation,” President François Hollande of France said Saturday.

Both France and the United States want Algeria to seal its borders with Mali, and France wants Algeria to continue to allow French planes to overfly its territory.

As the independent inquiry into the attack on the American mission in Benghazi observed, the Qaeda affiliate in North Africa and other militant factions in the region increasingly represent the new face of terrorism — groups that are violently anti-American but not under the command and control of Qaeda leaders in Pakistan.

Al Qaeda in the Islamic Maghreb started out as an Algerian group that was fighting the Algerian government. Pushed out of Algeria, it found a sanctuary in northern Mali as did militants who left Libya following the fall of Col. Muammar el-Qaddafi.

The initial French and American strategy was to keep a low profile in the region, while training African troops who would be sent to Mali to contend with the Qaeda-affiliated militants.

There were growing signs that North Africa was becoming more dangerous. A Western security expert who was asked to assess the threat to Algeria’s oil complex last year had reported an “elevated” risk due to the militants in Mali.

Still, the American and French plan assumed that the threat posed by the militants in Mali would be slow to build and that the West had time to organize an African military response — the plan had been to deploy it in September this year.

But the militants’ offensive in Mali and the attack in Algeria has demonstrated that the groups have a broader reach than anticipated and are prepared to take the offensive. The French intervention that followed has introduced a new variable in the equation.

“The ground has completely shifted,” said Bruce Hoffman, an expert on terrorism at Georgetown University.

The Obama administration, which has sent 100 trainers to an array of African nations to help prepare African troops for their mission alongside the French in Mali, appears to be weighing how energetically to support the French military effort.

With the Americans still scrambling to determine just what happened in Algeria and to identify their dead, the United States has yet to detail how it plans to adapt its Africa strategy.

Experts say that any regional strategy needs to help African nations better secure their borders, both to limit the movement of militant factions and to reduce drug smuggling, which is one of their main forms of raising revenue.

Targeting the militant leaders who are responsible for most of the attacks is essential, Mr. Atallah said.

But he stressed that an enduring solution in Mali, they say, needs to foster a political accommodation between the Mali government and the Tuaregs, a nomadic people in northern Mali, and ensure that Mali’s armed force does not use the counterterrorism campaign as an excuse to attack them.

The problem of human rights abuses remains a nagging concern for any Western-supported military intervention. Human Rights Watch recently reported that the militant groups in northern Mali have recruited several hundred children to use as soldiers, and added that some children were at checkpoints that had been bombed by French aircraft.

With the White House largely focused on domestic issues and officials long wary about expanding the American military footprint in the region, some of the barrier to action may be self-imposed.

Mr. Hoffman said that the United States should consider stepping up its support for the French intervention by providing additional logistical support and perhaps making use of drones so that the French military can better carry out its operations and hand over the mission as soon as possible to African troops.

“I do not think the U.S. involvement has to be extensive,” he said. “I do think we need to be more proactive.”

Steven Erlanger contributed reporting from Paris.

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