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However, the two biggest issues on investors minds -- European financial stability and the slowing U.S. recovery -- held bargain hunting in check and risk taking at a minimum.

Australia was the exception, where rising equities led Asia on a solid labor market report, which also drove the Australian dollar to a four-month high.

Meanwhile, the yens 11 percent rise has battered depressed Japanese equity valuations, with stocks trading at the cheapest relative to expected earnings since December 2008.

With uncertainty rife about how much more the yens climb has to run, investors were cautious about rebuilding their Japanese stock portfolios just yet.

"Worries about Europe were soothed somewhat following a bond auction in Portugal, and that prompted short-covering in the market, which was hit hard by the advance in the yen versus the dollar and the euro yesterday," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.

"But market players were reminded that Europes sovereign concerns are continuing and thats not something that will improve right away," Segawa said.

The Nikkei share average .N225 was up 0.7 percent but was still down 3.2 percent for the quarter and is the third-worst performing Asian stock market this year.

Japanese stocks were trading at 12.9 times expected earnings one year ahead, the lowest since December 2008, when markets were in the midst of the financial crisis, Thomson Reuters I/B/E/S data showed.

The MSCI index of Asia Pacific stocks outside Japan was up 0.5 percent, led by early gains in the materials sector. The index has risen 9.8 percent in the quarter so far, slightly outperforming the all-country world indexs 8.6 percent rise.

The yen was steady with global equity markets edging higher, with the dollar at 83.79 yen, nearly unchanged on the day. The dollar hit a 15-year low on Wednesday around 83.34 yen.

The Australian dollar was a big mover on the day, rising 0.4 percent to US$0.9224, the highest since May. Australian employment in August was surprisingly strong, lifting the stock market .AXJO and knocking bond futures lower.

"Its good news in a sense it means household income and spending will probably grow," Michael Blythe, chief economist at CBA in Sydney, said of the surge in Australian employment. "But it comes at the risk of rising inflation pressure as well."

Additional reporting by Aiko Hayashi in Tokyo

The latest Blue Chip Economic Indicators report on Thursday said the weaker outlook for second-half 2010 growth stemmed from lower expectations for consumer spending, business investment and private construction.

"Growth in the current quarter now is expected to be little better than the disappointingly soft advance registered last quarter," the survey said. Gross domestic product grew at a meager 1.6 percent annual rate in the second quarter, less than half the first quarters 3.7 percent rate.

But the economists group said that, after the mid-year soft patch, it saw a gradual improving trend setting in with growth slightly surpassing trend rate in the second half of 2011.

Blue Chip defines GDP trend growth at about 2-3/4 percent a year.

"For all of 2010, real GDP now is forecast to increase 2.7 percent on a year-to-year basis, 0.2 of a percentage point less than a month ago and 0.6 of a point less than predicted in June," the survey said.

Its consensus forecast for real GDP growth in 2011 was cut by 0.3 of a percentage point from a month ago to 2.5 percent.

"Given the depth of the recession, a forecast of roughly trend growth this year and next amounts to a very disappointing pace of recovery, with little progress expected to be made in lowering the unemployment rate," the forecast said.

Its consensus forecast is that the U.S. unemployment rate will end this year at 9.6 percent and fall only to 9 percent by the end of 2011.

It forecast that after averaging 554,000 new housing units in 2009, starts this year will rise to 600,000 and to 760,000 units in 2011. "Although residential investment appears destined to subtract from GDP in the second half of this year, double digit growth is expected by early 2011, with rates of growth over 30 percent by the second half," Blue Chip said.

The economists said they expect short-term interest rates to remain very low before starting to rise next summer. They said the Federal Reserve -- the U.S. central bank -- likely will keep the federal funds rate at its current range of zero to 0.25 percent through mid-2011, finally raising it to 0.75 percent by the end of 2011.

Reporting by Glenn Somerville; Editing by James Dalgleish

On a campaign trip to Ohio less than two months before November 2 congressional elections, Obama admitted his economic policies had not worked as quickly as hoped, but said his party and proposals were still better placed to boost the U.S. economy.

Obamas comments, laced with political rhetoric, came amid a growing verbal battle with Republicans over tax cuts for wealthy Americans enacted under former President George W. Bush and set to expire at the end of this year.

John Boehner, the Republican leader in the House of Representatives, called for a two-year freeze on current U.S. tax rates and proposed the government cut spending for next year to 2008 levels, before the controversial federal bailouts and Obamas $814 billion stimulus plan.

Obama rejected that call but said his administration was ready to extend tax cuts for families making less than $250,000 a year.

"For any income over this amount, the tax rates would go back to what they were under President Clinton. This isnt to punish folks who are better off -- God bless them -- it is because we cant afford the $700 billion price tag," he said.

Republicans blame Obama for inflating the deficit, forecast at a record $1.47 trillion in 2010, or 10 percent of GDP, with bloated stimulus spending they say failed to deliver jobs.

The White House is seeking to use a version of the same argument against the Republicans by saying extending Bushs tax cuts would increase the deficit too.

With the unemployment rate at 9.6 percent, Obamas Democrats are struggling to keep control of the House in the November elections and may even lose the Senate.

Nodding to that threat, the president said Democrats must ensure the November vote is about policy differences between the two parties, not the poor performance of the economy.

"If the election is a referendum on are people satisfied about the economy as it currently is, then were not going to do well, because I think everybody feels like this economy needs to do better than it has been doing," Obama told ABC News in an excerpt of an interview taped in Cleveland after his speech.

"My challenge, and the challenge of every Democratic candidate who is out there, is just making sure people understand that there is a choice here," he said.

Boehner, who is from Ohio and would likely replace Democrat Nancy Pelosi as House speaker if Republicans win a majority, cited Peter Orszag, Obamas former budget director, who wrote in The New York Times on Tuesday that extending the tax cuts to the rich would be worth it if that led to a deal in Congress.

"If the president is serious about finally focusing on jobs, a good start would be taking the advice of his recently departed budget director and freezing all tax rates, coupled with cutting federal spending to where it was before all the bailouts, government takeovers, and stimulus spending sprees," Boehner said in a statement after Obamas speech.

OBAMA VS BOEHNER

Ohio is a politically important state that often swings between supporting Democrats and Republicans.

Obama had especially harsh words for Boehner, who called recently -- during a speech in Ohio -- for the president to fire his economic team.

"When these same Republicans -- including Mr. Boehner -- were in charge, the number of earmarks and pet projects went up, not down," Obama said, referring to expensive projects called "earmarks" lawmakers add to congressional bills.

"These same Republicans turned a record surplus into a record deficit ... And when you ask them what programs theyd actually cut, they dont have an answer. Thats not fiscal responsibility. Thats not a serious plan to govern."

Boehner said extending the tax cuts would give certainty to small businesses -- a key constituency both parties see as crucial to boosting the sluggish economy.

Obama said the economy had improved since he took over from his Republican predecessor but the pace was slow.

"Not everything weve done over the last two years has worked as quickly as we had hoped, and I am keenly aware that not all our policies have been popular," he said.

The White House hopes its latest policies will be winners with the public, despite dim chances Republicans will support them in Congress.

Obama proposed accelerating $200 billion in business tax write-offs; an infrastructure spending boost of at least $50 billion; and increasing and permanently extending a research and development tax credit costing $100 billion over 10 years.

Treasury Secretary Timothy Geithner told CNBC he believed there was support in Congress for the proposals and said the country was recovering slowly from a "savage" recession.

Economists said the new plans could provide a modest burst of activity in a slow-growth economy. The risk is that they would only pull forward investments, which would do little to alter a sluggish growth trajectory and spur hiring to alleviate the 9.6 percent unemployment rate.

The White House says the eventual cost of accelerating the $200 billion in tax write-offs would be $30 billion, because businesses would eventually deduct the depreciation of their equipment. That would bring the total value of the proposed programs to about $180 billion, or more, over time.

Additional reporting by Alister Bull and Matt Spetalnick; Writing by Jeff Mason; Editing by Jerry Norton and Peter Cooney

The 193-page BP report offered a preview of how the British oil giant plans to vigorously defend itself against lawsuits arising from the disaster and any charges of gross negligence, which carry fines potentially in excess of $20 billion.

BP accepted some responsibility for the disaster but pointed the finger at what it said were major failures by Transocean Ltd, the operator of the ill-fated Deepwater Horizon oil rig, and oil services company Halliburton, which cemented the deep-sea well that ruptured on April 20.

The report drew fire from a prominent U.S. lawmaker who accused BP of trying to minimize its role in the disaster. Transocean called it a "self-serving" attempt by BP to escape responsibility for its "fatally flawed" well design, while Halliburton said the report was filled with inaccuracies.

The report threatened to reignite public anger over the massive spill, which caused an environmental catastrophe along the U.S. Gulf Coast, devastated tourism and fishing in the area and damaged President Barack Obamas popularity.

Obamas spokesman, Robert Gibbs, declined to comment on BPs findings and said the government was still investigating the disaster to "find out what went wrong and hold those responsible accountable for the damage thats been done."

COMPLEX SERIES OF FAILURES

BP investigators were unable to identify any single action or inaction that caused the Deepwater Horizon rig to blow up on April 20, killing 11 workers, after the Macondo well ruptured.

"Rather, a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces came together to allow the initiation and escalation of the accident," the report said.

"Multiple companies, work teams and circumstances were involved over time."

Investors had been eagerly awaiting the report to find out whether BP would be able to share the potential costs of the spill -- estimated by some analysts to exceed $50 billion.

Citigroup analysts said in a research note that BPs report "appears to support the case for no negligence," but they acknowledged that the findings of the internal investigation were unlikely to be accepted as objective.

BP shares trading in New York closed up 3.2 percent, while shares of Transocean were 1.3 percent higher and those of Halliburton were up 1.2 percent.

Standard & Poors downgraded Transoceans rating to BBB from BBB-plus, saying the Swiss-based company faced uncertain liabilities arising from the disaster.

The U.S. Justice Department could pursue a variety of civil and criminal charges against the companies involved in the spill. Any penalties could be in the billions of dollars.

The ruptured well unleashed a torrent of crude that spewed until it was capped three months later on July 15, after 4.9 million barrels of oil had leaked into the sea.

The top U.S. official overseeing the spill response, retired Coast Guard Admiral Thad Allen, said on Wednesday that BP may not start the final "kill" of its well until mid- to late September.

The BP report, overseen by BPs head of safety, Mark Bly, highlighted eight key failures that led to the blowout of the well and the subsequent explosion aboard the rig.

It defended BPs much-criticized single-casing well design; the use of fewer-than-recommended centralizers devices used to ensure the cement casing is applied evenly around the well; and the decision to replace heavy drilling mud, which was keeping the well under control, with lighter water.

"It would appear unlikely that the well design contributed to the incident," said BPs outgoing Chief Executive Tony Hayward, who has faced withering criticism from U.S. lawmakers for initially playing down the scale of the disaster.

"HAPPY TO SLICE UP BLAME"

BP, which has seen almost $70 billion wiped off its market value since April 20, is trying to rehabilitate its tarnished public image and restore investor confidence, spending millions of dollars on positive television and newspaper advertising.

"This report is not BPs mea culpa," said Democratic congressman Edward Markey, an outspoken critic of BPs handling of the disaster. "Of their own eight key findings, they only explicitly take responsibility for half of one. BP is happy to slice up blame, as long as they get the smallest piece."

Energy industry analysts were also not convinced by the BP findings, noting its investigators did not have access to everyone who had been involved in the project.

"Make no mistake, our view remains that this is BPs well, and BP is in charge of design and execution," Houston energy investment boutique Tudor Pickering Holt & Co said in a note.

The BP investigation found fault with Transocean employees aboard the rig at the time of the accident.

"Over a 40-minute period, the Transocean rig crew failed to recognize and act on the influx of hydrocarbons into the well," BP said.

But Transocean said BP was seeking to conceal the key factor that led to the rig explosion -- the well design.

"In both its design and construction, BP made a series of cost-saving decisions that increased risk," it said.

Halliburton joined Transocean in rejecting the findings, saying the BP report contained "substantial omissions and inaccuracies" and stressed it was fully indemnified for any allegations in the document.

In pointing the finger at its contractors, BP said:

-- Halliburton had used an "unstable" cement mixture that allowed hydrocarbons to leak into the well.

-- There was "no indication" that Transocean had tested the automatic shut-off function on the blowout preventer before it was used on the Deepwater Horizon rig. Blowout preventers are designed to halt all oil and gas flow and contain pressure if there is an uncontrollable gush from a seabed well.

-- The rig crew diverted the flow of drilling mud and hydrocarbons into the wrong system after the blowout. This meant gas vented onto the rig floor, rather than toward the sea, where it would have been less likely to cause a blast.

Transocean spokesman Lou Colasuonno said the blowout preventer was "inspected, tested and went through a rigorous maintenance schedule prior to being placed on the Macondo well and was then tested weekly, right up until 72 hours prior to the blast."

"Any statement to the contrary is false," he said.

The damaged blowout preventer is key evidence in criminal and civil investigations of the blast. BP retrieved it from the seabed on Saturday under watch of federal investigators and it is being sent to a NASA facility in Louisiana.

Additional reporting by Matt Daily in New York, Kristen Hays in Houston and Matt Spetalnick in Washington; Writing by Ross Colvin; Editing by John OCallaghan and Tim Dobbyn

The Fed said in its Beige Book compilation of anecdotal reports that modest growth continued in the five western districts: St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

At the same time growth was mixed or had slowed in five other areas: New York, Philadelphia, Richmond, Atlanta, and Chicago.

The remaining two districts, Boston and Cleveland reported positive developments and improvements in business activity.

Upward price pressures remained quite limited for most categories of goods and services, and wage pressures were also subdued, the Fed said.

Reporting by Mark Felsenthal; Editing by Neil Stempleman

The September poll marked the third consecutive month economists had scaled back expectations for gross domestic product in the second half, and followed the U.S. governments announcement on Friday that unemployment ticked up to 9.6 percent in August.

Lower growth expectations means the U.S. Federal Reserve is unlikely to raise interest rates until the third quarter of 2011, according to the poll, not the second quarter as forecast in a poll a month ago. However, the chances of the worlds biggest economy falling back into recession have fallen to 20 percent, from 25 percent a month ago.

The median of forecasts in a survey of more than 70 economists puts annualized U.S. GDP growth at 1.8 percent in the third quarter of this year and 2.1 percent in the fourth quarter.

A similar poll conducted in early August forecast third-quarter growth at 2.4 percent and fourth-quarter growth at 2.5 percent. A poll taken in July forecast growth of 2.6 percent and 2.7 percent during the respective quarters.

Struggling homes sales, weak consumer confidence and the lofty unemployment levels are prompting economists to rein in growth expectations.

"The real risk is sub-par growth for an extended period," said Michelle Girard, senior economist at RBS in Stamford, Connecticut.

Overall, GDP is forecast to average 2.7 percent in 2010, down from 2.9 percent in the August poll and 3 percent in the July poll. The median of forecasts in the most recent poll was for average GDP growth of 2.4 percent in 2011, down from an August forecast of 2.7 percent and a July forecast of 2.8 percent.

The government said on Friday that U.S. employment fell for a third straight month in August, with 54,000 jobs lost during the month. The drop was less than expected, however, and private hiring increased.

Still, the lack of substantial job creation troubled some economists. Jonathan Basile, economist at Credit Suisse in New York, said his bank on Friday reduced its expectations for third-quarter GDP to 2 percent from 2.5 percent, and for the fourth quarter to 2.2 percent from 3.2 percent.

"There has been a downshift in private jobs growth, and that is consistent with our new forecast which has just been downgraded," Basile said.

FED ON HOLD

The slower growth will probably mean the U.S. Federal Reserve will hold recommended interest rates at their current level near zero until at least the second half of next year, according to the results of the poll.

The median of forecasts is for the central bank to increase rates to 0.25 percent in the third quarter of 2011 from the current range of zero to 0.25 percent.

In the early August poll, the median called for an initial rate increase to 0.5 percent in the second quarter of 2011.

The Fed is now expected to increase interest rates to 0.75 percent in the fourth quarter of next year, down from an original estimate of a hike to 1.25 percent during the quarter.

And while growth is expected to slow, the median of forecasts from economists assigns only a 20 percent chance the U.S. will tip into a double-dip recession, down from a 25 percent chance in an August 27 poll.

Inflation was also forecast to remain subdued. The third- and fourth-quarter consumer price index was forecast at 1.2 percent and 0.9 percent respectively, which were virtually unchanged from the August poll. The overall CPI index was expected to be 1.6 percent higher for 2010, in line with Augusts forecast.

Core CPI, which does not include food or energy costs, was estimated at 1 percent in the third quarter of this year, up from 0.9 percent in the August poll, while fourth-quarter core CPI was pegged at 0.9 percent, which was unchanged from the previous poll.

Polling by the Bangalore Polling Unit

Editing by Susan Fenton

BPs partner in the blown-out Gulf of Mexico well, Anadarko Petroleum, has accused it of gross negligence.

If this is proven, BP will be liable for 100 percent of the costs of cleaning up the spill, rather than 65 percent it would otherwise pay, the level equal to its ownership of the well.

If gross negligence is proven, BP could also be liable to federal fines of over 20 billion dollars, as opposed to under a quarter of that if this is not proven.

BP has said it believes it was not grossly negligent and previous statements from it and testimony from survivors to official probes suggest representatives of all the companies involved will be criticized on Wednesday.

BP has previously criticized rig operator Transocean and Halliburton, the company which cemented the inside of the well. Investigators believe the cement job probably failed, allowing gas into the well, which subsequently came up onto the rig and caused the blast.

But if the report -- which BP said was compiled by its head of safety, Mark Bly, without influence from senior management produces evidence of gross negligence -- it could spook investors. However analysts do not expect this.

"We believe the report could shift the focus of culpability back toward Transocean and in particular the integrity of the Blowout Preventer BOP which should have acted as the ultimate fail safe," Keith Morris, oil analyst at Evolution Securities said in a research note.

"If our view is correct then BPs shares could rally this afternoon as expectations of gross negligence litigation is eroded."

Yet, if BP seeks to shift most of the blame onto Transocean, which was responsible for the BOP, it risks being accused of merely seeking to reduce legal liability, rather than unveil the truth.

President Obama previously criticized blame-shifting by the companies, so if BP does dump more blame on others it could further depreciate BPs already low currency in Washington, where it needs to curry favor if it wishes to continue operating in the Gulf of Mexico.

The report will be closely watched to see how far up the BP management chain it finds fault.

If BP only finds low-level employees to blame, it will be accused of a whitewash.

After its Texas City blast in 2005 when 15 workers were killed, BP sacked several hourly workers, blaming them for failing to follow correct procedures.

The official probe by government regulators later blamed more structural problems at BP, most notably a focus on cost saving over safety.

So far many U.S. politicians have already concluded that the rig blast was due to similar cost-cutting efforts by BP. Accusations of bad faith are likely to be enhanced if employees who failed to assist federal regulators are found to have contributed to the BP report.

Reporting by Tom Bergin; Editing by Hans Peters

The FTSEurofirst 300 .FTEU3 index of leading European shares was down 0.2 percent at 1,059.90 points.

The yen struck a fresh 15-year high against the dollar and the Swiss franc hit an all-time high versus the euro on Wednesday as a flare-up in worries over euro zone banks and sovereign debt led investors to shun risk.

BP is expected to publish on Wednesday a report on the Deepwater Horizon accident in the Gulf of Mexico. The findings result from an internal investigation into events on the drilling rig, which exploded and sank, leading to the oil spill that gushed over 60,000 barrels per day of oil into the sea and cost the company $8 billion so far.

The Federal Reserve releases its periodic Beige Book, with anecdotal reports on the economy from the regional Feds. The economic evidence gathered from its 12 regional banks will provide insight into what is and isnt working well, drilling down to details as specific as Broadway show ticket sales, rural crop conditions and vacation resort bookings.

ICSC/Goldman Sachs release chain store sales for the week ended September 4 compared with the prior week. In the previous week sales rose 0.1 percent.

Redbook releases its Retail Sales Index of department and chain store sales for September compared with August. In the prior period sales rose 1.0 percent.

U.S. stocks fell in very light volume on Tuesday as investors seized on renewed concerns about European banks as a reason to sell shares after strong gains last week. The Dow Jones industrial average .DJI, the Standard & Poors 500 Index .SPX and the Nasdaq Composite Index .IXIC fell between 1 and 1.2 percent.

Reporting by Brian Gorman; Editing by Greg Mahlich