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HONG KONG (Reuters) � Asian stocks shot to a two-year high on Monday, boosted by interest in emerging markets, while the dollar edged up after last week's selloff though speculation the Federal Reserve will add to money supply was still rife.

The dollar remained close to an eight-month low against a basket of major currencies (.DXY), with expectations increasing the Fed will resort to a second round of bond purchases before the year is over to support the U.S. economy.

By contrast, Chinese manufacturing activity has held up surprisingly well, keeping investors confident about the region's prospects and pushing up the MSCI index of Asian stocks outside Japan (.MIAPJ0000PUS) to the highest level since June 2008.

"Continued foreign buying, amid the U.S. dollar's recent weakness and an increasing preference for emerging market stocks, has lifted the market to a new high," said Lee Jin-woo, a market analyst at Mirae Asset Securities in Seoul.

Strong foreign portfolio flows into the region have lifted Asian currencies, putting pressure on regional central banks to step up intervention to limit the inflow of speculative "hot money" and to support their export-oriented economies.

In South Korea, foreign investors were buyers of a net 141 billion won ($124.8 million) worth of stocks, poised to pick up shares for a 14th straight session, the longest buying streak since April.

Japan's Nikkei (.N225) reversed earlier losses and was up 0.3 percent as the yen weakened against the dollar and ahead of a Bank of Japan policy decision on Tuesday.

The dollar surged in a short-covering rally against the yen, which retreated against other currencies as investors unwound some long yen positions ahead of the BOJ meeting.

CENTRAL BANKS ON TAP THIS WEEK

Former BOJ Deputy Governor Toshiro Muto said on Friday the central bank may ease policy as inaction would run the risk of spurring further yen gains, given the prospects for easing by the U.S. Federal Reserve.

Traders are not expecting the BOJ to make a substantial change to policy but may hold off on big bets on the yen ahead of central bank meetings in Britain and the euro zone on Thursday, as well as the September U.S. payrolls report on Friday.

"Nervous trade will likely continue this week, even after tomorrow's event, as U.S. jobs data is also set to be released later in the week," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

The MSCI index of Asia Pacific shares outside Japan, which has risen for six consecutive weeks, was up 1.1 percent with a 2.3 percent gain in the energy sector leading the pack on the back of firm crude prices.

Hong Kong's Hang Seng index (.HSI) led regional exchanges, rising 1.4 percent, with oil-related stocks such as CNOOC Ltd (0883.HK) providing the most support to the market.

Petrochina Co. (0857.HK), the world's second-most valuable oil and gas producer, was up 3.7 percent in Hong Kong.

U.S. crude futures were steady near a two-month high at $81 a barrel, having risen $5 in the past week on the dollar's weakness and as a strong revival in Chinese manufacturing by a mid-year lull appeared to soothe fears of a new downturn in the global economy.

The dollar looked vulnerable against a basket of currencies, hovering near Friday's eight-month low, but had edged up 0.2 percent against a basket of currencies in Asian trade(.DXY).

"It's still a dollar-negative situation but short-term probably the market has priced a lot in," said Masafumi Yamamoto, chief FX strategist Japan at Barclays Capital.

Asian currencies, such as the South Korean won and Taiwanese dollar, climbed against the dollar, despite an estimated $18.8 billion spent by regional central banks last week to keep their currencies weak, according to estimates from traders compiled by IFR Markets.

The potential of significant amount of cheap money being added to the financial system via the Federal Reserve continued to support gold prices.

The precious metal was up 0.2 percent to $1,317.55 an ounce, after hitting a fresh record of $1,320.80 on Friday on sustained dollar weakness.

(Additional reporting by Charlotte Cooper in Tokyo and Catherine Tan in Singapore; Editing by Ron Popeski)

PARIS (Reuters) � French pharmaceutical giant Sanofi-Aventis (SASY.PA) launched a hostile bid for Genzyme (GENZ.O) at $69 per share, or $18.5 billion, setting off what could be a protracted battle for control of the U.S. biotech.

The move comes a month after Genzyme rebuffed an approach from Sanofi-Aventis (SASY.PA) at the same price. Sanofi has been in discussions with Genzyme shareholders and stated repeatedly that it would go no higher.

Sanofi said in a statement on Monday that its offer, which is all in cash, would expire on December 10 at 11:59 pm EST.

"While Sanofi-Aventis' strong preference is to engage in constructive discussions with Genzyme, Genzyme's board and management team's continued refusal to do so has led Sanofi-Aventis to commence the tender offer," said Sanofi.

Sanofi said its CEO Chris Viehbacher met with the CEO of Genzyme Henri Termeer on September 20, but the talks "proved unproductive."

Sanofi added that it had met with Genzyme shareholders who collectively own more than 50 percent of the biotech, and that these people were frustrated with Genzyme's reticence to engage in real talks with Sanofi.

In a letter dated October 4 that Viehbacher wrote to Temeer, he criticized Termeer's unwillingness to provide information about Genzyme's ongoing manufacturing issues and a promising new indication for a drug. Both questions are central to the valuation of the biotech firm's fortunes.

(Editing by Will Waterman)

MUMBAI (Reuters) � U.S. insurer American International Group (AIG.N) is in talks with potential buyers to sell its mutual funds business in India for roughly $10 million, according to a report in the Mint newspaper citing three unnamed people familiar with the matter.

The newspaper said Bank of America Merrill Lynch (BAC.N) had been appointed to arrange a sale of AIG Global Investment Group Mutual Fund, which has about 10.2 billion rupees ($230 million) under management.

A sale would value the unit at roughly 4-5 percent of its assets under management, according to the report.

The report said both AIG and Bank of America Merrill Lynch declined to comment.

NEW YORK (Reuters) � As September's surge fades into a fond memory, the question for the U.S. stock market is: Now what?

The market shook off the summer doldrums last month, breaking out of a stubborn trading range and giving investors the second-best September on record with a gain of 8.8 percent on the S&P 500. It also racked up its best quarter in a year.

The strength of that momentum will be tested this week by a round of economic data, including the much-watched nonfarm payrolls report, as well as the start of third-quarter earnings season. The S&P has also been bumping up against a technical resistance level that could spark further gains if the index breaks through it.

Trading has been in a tight range the past week as the quarter wound down and the muted action could continue in the lead up to the employment report on Friday.

"People are still exhibiting a lot of fear in their investment decisions, with so much money flowing into bond funds and Treasuries, that any uptick in economic data could catch investors off guard," said Michael O'Rourke, chief market strategist at BTIG LLC in New York.

"That should help fuel a nice fourth-quarter rally in equities."

September nonfarm payrolls, due on Friday, are forecast to remain unchanged after a loss of 54,000 jobs in August, according to a Reuters poll of economists. However, the forecast range is wide, with a gain of 106,000 jobs on the upside and a loss of 75,000 jobs on the downside.

BREAKOUT COMING?

As the bulls and bears keep fighting over the stock market's direction, technical indicators have become more widely scrutinized. The S&P 500 has been bouncing between the 1,140 and 1,150 levels, but has fallen back from the top end of that range in the past six sessions.

While analysts have attributed some of September's move to "performance chasing," where gains beget more gains, O'Rourke thinks the real action might not happen until the fourth quarter.

"I view it more as a lot of people were sitting out the volatility, waiting for a trend to emerge," O'Rourke said. "If you get that breakout above 1,150 and it looks like it's a real breakout, that will give people confidence that a real trend has emerged to the upside."

History is on the market's side. A strong September usually portends a positive October and fourth quarter, according to Birinyi Associates Inc.

When September rises 5 percent or more, October is up, on average, 1 percent, according to data from Birinyi. Only in one occurrence following that type of September gain did the fourth quarter deliver a negative result, which happened in 1939.

KICKING OFF THE QUARTER

Analysts will be parsing comments from CEOs and other corporate talking heads as their companies release quarterly results to gauge how executives see the recovery unfolding. Investors have become more optimistic over the strength of recovery in the last month as worries of a return to recession have faded.

"I'm looking for companies to say things are not falling off a cliff. They're not rapidly improving, but we're starting to see this moderate, sustainable growth," said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

Alcoa Inc (AA.N) marks the unofficial start to earnings season when it reports quarterly results on Thursday. Other companies releasing results this week include Yum Brands Inc (YUM.N), Costco Wholesale Corp (COST.O), Monsanto Co (MON.N), Micron Technology (MU.O) and PepsiCo Inc (PEP.N).

Third-quarter earnings for the S&P 500 are forecast to grow 23.8 percent, though the estimate has shrunk slightly from the 25.6 percent that was predicted at the beginning of July, according to Thomson Reuters data.

On the economic front, pending home sales and factory orders for August kick off the week. Pending home sales are expected to rise 3 percent compared with a rise of 5.2 percent the month before, while factory orders are expected to dip 0.4 percent from a gain of 0.1 percent the previous month.

The Institute for Supply Management's September index for the non-manufacturing, or services, sector is expected to show a reading of 52, up from 51.5 the month before. The ISM services index will come out on Tuesday.

Wednesday will bring the ADP report for September, a precursor to the government's larger employment report for the month. The ADP data is forecast to show the private sector added 22,000 jobs last month.

In another glimpse of the labor front, initial jobless claims are expected to hold steady at 453,000 for the latest week, according to economists polled by Reuters.. That report is expected on Thursday.

And finally, wholesale inventories for August are expected to rise 0.5 percent, compared with 1.3 percent the month before. That data will come out at mid-morning on Friday.

(Reporting by Leah Schnurr; Editing by Jan Paschal)

NEW YORK (Reuters) � Airline company United Continental Holdings Inc. (UAL.N), formed Friday in the merger of UAL and Continental Airlines, said Chief Executive Jeff Smisek would receive an annual salary of $975,000.

Smisek, who had been CEO of Continental, my also receive 150 percent of his salary as an annual bonus. Pay details were disclosed by the company in a Securities and Exchange Commission filing Friday.

UAL and Continental merged to create the world's largest carrier by traffic.

Smisek, who has a three-year contract, also may receive a long-term incentive award next year with a value of $8.4 million as well as a one-time merger bonus of $4 million.

Glenn Tilton, who was CEO of UAL, retired Friday. He will get a retainer of $600,000 and grant of $150,000 in restricted stock each year.

Other top-paid United Continental executives have two-year contracts, including Chief Financial Officer Zane Rowe, who will receive an annual salary of $750,000.

(Reporting by Joseph A. Giannone; Editing by Diane Craft)

WASHINGTON (Reuters) � The International Monetary Fund has called for a new world system to dismantle troubled financial institutions and a levy on banks to pay for it.

The IMF's statement, released on Sunday, comes ahead of meetings here this week among fund officials, the World Bank and leading nations' finance officials. It urges better international regulatory cooperation and stronger supervision.

Two years after the peak of the worst global financial crisis in generations, the IMF is seeking to keep momentum going for substantive cross-border financial reforms.

"Although important steps have been taken like Basel III ... much more remains to be done," said Jose Vinals, a senior executive at the fund. "We need to work together."

The Basel III accord on bank capital standards was finalized weeks ago. Earlier this year, the United States approved sweeping bank and Wall Street reforms. European Union nations have been moving along on reforms of their own.

After massive taxpayer-financed bailouts in the last crisis, one of the toughest aspects of the two-year-old push for a regulatory overhaul has been finding a way to ensure that taxpayers don't get stuck with the bill for the next crisis.

"It would be unrealistic to have an international fund" dedicated to paying for the dissolution of financial firms that run into trouble, Vinals told reporters at a briefing.

"National regimes is what we were envisioning," he said, adding that a nation would not have to impose a bank levy to participate in some sort of global resolution regime.

He said that the IMF's bank levy proposal was "still on the table." The fund initially proposed it in April, drawing statements of opposition from the banking industry.

BROWN BROACHED LEVY

Former British Prime Minister Gordon Brown broached the idea of a levy in late 2009. Support for it has varied since.

U.S. President Barack Obama has proposed a $90 billion tax on big banks to recoup taxpayer bailout expenditures.

The U.S. Congress in June dropped a bank levy from the final version of legislation to reshape bank regulation, but Democratic Representative Barney Frank wants to revive it.

Frank is chairman of a key congressional committee that oversees banks. Like other members of the U.S. House of Representatives, Frank faces a reelection test on November 2. He may or may not return to the committee chairmanship.

The EU aims to reach a deal on a bank tax by the end of the year, the bloc's presidency said last week.

Didier Reynders, finance minister for Belgium, which holds the EU presidency, said the EU was working on measures to ensure that banks and not taxpayers pay for bailouts in future. The bloc's executive European Commission is studying a levy.

"We will try to reach an agreement on that by the end of the year," Reynders told a Eurofi symposium on EU regulation.

The IMF released a "staff position note" calling for more global coordination on oversight, stronger supervision, an international resolution regime for troubled firms and possibly "a levy whose receipts could either accumulate in a resolution fund or be paid into general revenue ...

"Such a levy ... can be imposed on all financial institutions, with the rate initially flat but refined over time to reflect institutions' riskiness and contributions to systemic risk," the note said.

(Editing by Bernard Orr)

ATHENS (Reuters) � China pledged on Sunday to support a stable euro and not reduce its holdings of European government bonds in an effort to deflect criticism of its foreign exchange policy ahead of an EU-China summit this week.

China, at loggerheads with the United States over the yuan and likely to face similar complaints during his tour of European countries this week, emphasized its willingness to cooperate with the 27-nation EU..

"I have made clear that China supports a stable euro," Chinese Premier Wen Jiabao said during a visit to Greece at the start of a one-week European tour. "We will not reduce the holdings of European bonds in our foreign exchange portfolio," he added.

Wen, who offered on Saturday to buy Greek government bonds when debt-laden Athens resumes issuing, said on Sunday he was glad Greece was starting to emerge from the shadows of its debt crisis.

China has said it needs to diversify its foreign currency holdings and has bought Spanish government bonds. Chinese state entities have been generally conservative about investing in foreign financial markets and the Chinese government faces domestic political criticism over losses they incurred during the global financial crisis.

FREEING THE YUAN

Policy moves by the Chinese government to free the yuan from a dollar peg will help the Chinese currency rise, Dominique Strauss-Kahn, the head of the IMF said on Saturday.

France has not held secret talks with China as part of an effort to heighten coordination of exchange rates, a French presidential palace source said on Saturday, dismissing an earlier Financial Times report.

The London-based paper said talks had been going on for a year and that Paris wanted to open the debate during the G20, rather than push a particular view, and was not proposing fixing rates.

Wen and his Greek counterpart George Papandreou said in a joint statement the world's nations need to coordinate economic policies for global recovery to find a sure footing..

"Global economic recovery is a journey with many turns and a full exit from it requires joint efforts," Wen said on Sunday. He made no comments on the yuan. On Saturday he said he was willing to work with the EU to confront the financial crisis and reform the international financial system.

Ahead of a China-EU summit on Oct 6, Wen urged the block to recognize China as a market economy, a status that would make it less vulnerable to anti-dumping charges under WTO rules.

In exchange, China offered to boost copyright protection and widen bilateral trade. "China commits to improving investment environment, to intensify copyright protection, widen bilateral trade and upgrade technology cooperation," he said in his speech in Greece's parliament through an interpreter.

But despite its growth, China remains an emerging economy, Wen said. "The basic reality of China, such as a huge population, a weak economic base, and unbalanced growth has not radically changed," Wen told parliament.

"Per capita GDP is just one eighth of Greece's and the percentage of population below the poverty line is three times that of Greece. China continues to be an emerging country."

He said he was confident Greece was on track to exit a debt crisis that shook the euro and said China wanted to boost cooperation with Greece, which faces its worst recession in decades.

Bilateral trade volume should double to $8 billion euros a year in 2015 with Greek traditional exports, such as olive oil, increasing.

"A few months ago, (we) signed an agreement to purchase 290 tons of Greek olive oil," Wen said. "Last night, for the first time in my life, I dipped a bite of bread in olive oil. It tasted very good."

(Writing by Harry Papachristou; Editing by Jon Loades-Carter)