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Investors turned to the safety of gold, which hit a record in euro terms in early trade, and to U.S. government bonds after Standard & Poor's put Portugal's credit rating on review for a possible downgrade, saying the country may have to turn to the EU and IMF for funding.

Although Lisbon, much like Ireland earlier, denies Portugal needs aid, markets are already discounting an eventual Portuguese emergency financial rescue.

While rescuing Portugal would be manageable, assistance for Spain would sorely test the European Union's resources, raising deeper questions about the integrity of its 12-year-old currency and possible contagion beyond Europe.

The euro fell to around $1.2969 in early Asia trade, lows not seen since mid-September, and experts said it could fall further unless there was strong action. <FRX/>

"You really need some aggressive action from the authorities in Europe to try and calm nerves and that's really the key at this stage," Greg Gibbs, a strategist at RBS in Sydney, said.

The euro has fallen some 9 percent from a November high around $1.4281 and was down about 7 percent in November, the biggest monthly fall since May.

CHINA DATA

Stock markets have tracked the euro zone's rolling debt crisis closely, and on Wednesday the MSCI index of shares outside of Japan .MIAPJ0000PUS drifted 0.16 percent lower, despite data from China that showed it had revved up production in November more than expected, with the official purchasing managers' index (PMI) rising to a seven-month high.

Shanghai stocks .SSEC were down 0.2 percent in early trade and Japan's Nikkei's share average .N225 also inched lower, brought down by constant concern over Europe's debt problems. The Nikkei fell nearly 2 percent the previous day, pulled down by tumbling China stocks following a liquidity squeeze in the share market. On Wednesday, it was 0.2 percent lower. .T

"Investors were worried over interest hikes in China and the euro zone yesterday and are now waiting for this Friday's U.S. employment figures and Christmas sales figures to trade on," said Fumiyuki Takahashi, equity strategist for Barclays Capital Japan.

Oil was steady near $84 a barrel while cash gold priced in euros hit a record at 1,068.70 euros an ounce, reflecting the worries Europe. <O/R> <GOL/>

(Editing by Alex Richardson)

The findings, which must be revealed in accordance with a deadline set by a wide-ranging rewrite of U.S. financial rules enacted in July, could shed light on who benefited most from central bank's controversial efforts to support financial institutions and credit markets.

The results might also reignite debate about whether some bailouts, such as the support for insurer AIG (AIG.N), were appropriate.

As the financial crisis that began in the summer of 2007 spread beyond the housing sector to the nation's biggest banks, the Fed, under the leadership of Chairman Ben Bernanke, devised increasingly complex facilities to help restore confidence.

Among these were loans to broker-dealers made outside the Fed's usual discount lending window for troubled institutions, which is reserved for deposit-taking commercial banks.

Investors are curious to see how much money the likes of Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Merrill Lynch, now part of Bank of America (BAC.N), took from the central bank.

"I suspect a lot of institutions might have had their hand out," said Kim Rupert, a managing director at Action Economics in San Francisco. "I expect we'll see some fairly significant borrowings from some of the major financial institutions. It will be interesting to see what foreign institutions were very active."

Other key emergency lending measures included an attempt to revive commercial paper markets with funding from the Fed, as well as a program aimed at securitization markets that also tapped central bank money as an incentive for new deals.

CRYPTIC CLARITY

Arguably, the Fed's most contentious and politically costly decision was the rescue of insurance giant American International Group. Criticism of the Fed grew after it emerged that AIG executives were paying themselves multimillion dollar bonuses.

The Fed-sponsored purchase by JPMorgan of troubled investment firm Bear Stearns in March 2008 also drew heavy scrutiny.

That bailout temporarily quelled market fears about contagion, though Lehman Brothers' failure in September of that year touched off the most virulent phase of the crisis.

Questions linger as to why the Fed and U.S. Treasury decided to let Lehman go after they had acted to save Bear Stearns. The Fed has argued it could not extend a loan to Lehman because the firm was insolvent.

Through it all, the Fed was criticized for being too close to the banking sector, while not doing enough to support the broader economy. In recent months the financial sector has recovered smartly but that rebound has failed to translate into a vigorous economic expansion.

The controversy led to efforts, eventually thwarted, to curtail the central bank's regulatory authority and regularly audit its emergency lending. The one-time disclosure emerged as a compromise.

Some analysts worry that despite the broad nature of the data being released, it would be disclosed in such a way as to make it difficult to make immediate sense of the information.

"My sense is they're going to give us the disclosure in the same grotty fashion (as before)," said Christopher Whalen, managing director at Institutional Risk Analytics, a bank research firm. "It's not going to be well organized so you'll have to sort through it."

The Senate Banking Committee is holding a hearing on problems in the mortgage servicing industry and whether they pose a broader risk to the economy or amount to an isolated if nettlesome problem.

The issues facing the still-struggling housing market have been exacerbated by allegations that banks have used "robo-signers" to sign hundreds of foreclosure documents a day without proper legal review.

Regulators have been criticized for not catching the widespread flaws, which have reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.

Federal bank regulators and all 50 state attorneys general are probing Bank of America (BAC.N), JPMorgan (JPM.N), and other major mortgage servicers, many of whom temporarily halted foreclosures to examine their practices, only to then resume them.

These regulators, including Federal Deposit Insurance Corp Chairman Sheila Bair and Federal Reserve Governor Daniel Tarullo, are expected to provide an update on the probe and how big a threat the documentation problems could pose to the banks and housing market recovery.

Representatives from mortgages finance companies Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) have also been summoned to appear.

Fannie Mae and Freddie Mac officials will likely be questioned on their recent decision to resume sales of foreclosed properties.

"I want to hear why they feel that they have corrected policies that have allowed the foreclosures to take place without the rubber stamping and all the excesses that took place in the foreclosure practices," Robert Menendez, chairman of the Senate banking panel's housing subcommittee, told Reuters.

AG PROBE TALKS IN FLORIDA

Much of the action pertaining to foreclosures is taking place outside Washington, with state attorneys general taking a prominent role in investigating the servicing problems.

Officials from Bank of America and JP Morgan Chase have said they would like to have a settlement with states soon, but so far a deal remains elusive and it could be months before one is reached.

The attorneys general are gathering in Florida this week for the winter meeting of their national association. Among their guests will be Elizabeth Warren, President Barack Obama's top adviser on consumer issues.

Warren was scheduled to attend a reception Tuesday night to hear where the attorneys general foreclosure investigation stands and to provide state officials with an update on efforts to stand up the new Consumer Financial Protection Bureau.

Attorneys general and lawmakers have taken aim at the so-called "dual track" practice in which mortgage servicers go ahead with foreclosure proceedings even as they negotiate possible loan modifications aimed at keeping struggling borrowers in their homes. They have derided the process as confusing for borrowers.

Minneapolis Fed President Narayana Kocherlakota said the Fed's controversial bond purchase program was needed given a "troubling" slowdown in U.S. economic growth and too low inflation and employment.

The Fed said earlier this month it would buy $600 billion in Treasury bonds to support a weak economy. Core inflation has averaged well below the Fed's informal target of about 2 percent and the jobless rate remains stubbornly high.

"There are obviously very severe economic and social consequences from this level of unemployment," Bernanke said at Ohio State University. "So getting new jobs, getting unemployment down is of an incredible importance."

The Fed's purchase program has elicited an unusual amount of criticism both at home and abroad, including that it is deliberately pushing down the dollar and fueling asset bubbles. Some U.S. Republicans have warned the policy will lead to runaway inflation.

Jeffrey Lacker, president of the Richmond Federal Reserve Bank and known as an inflation hawk, said the Fed faces a delicate task of timing the eventual withdrawal of easy money to avoid a run-up in inflation, but that he doesn't yet know when that time will be.

"We've increased the monetary base tremendously, and there is a lot of people that just look at that and jump to the conclusion that hyperinflation is a threat," Lacker told a panel in New York.

"I think there's a little bit of overreaction, a little bit of hysteria out there" on inflation.

WORRYING LONG-TERM UNEMPLOYMENT

Bernanke repeated his argument that action was called for even though the economy has been growing for a year and a half, but he steered clear of any direct comments on U.S. monetary policy.

The high share of workers who have been out of work for six months or longer is troubling, he said, because those workers face a particularly high bar to reentering the labor force both because they lose skills and because employers may question their suitability for employment.

Bernanke also said the elevated jobless rate makes businesses and households reluctant to spend because they are uncertain of future income.

Kocherlakota, for his part, told a symposium in St. Paul, Minnesota, that the Fed's decision to buy more longer-term assets should help reduce real interest rates and "lead to less unemployment and upward pressure on prices" albeit only modestly.

Kocherlakota, who next year rotates into a voting seat on the Fed's policy-setting committee, said the purchases are unlikely to fuel future inflation because the central bank has the tools and the commitment to keep inflation low.

Peter Diamond, whose nomination to the Fed's Board of Governors is awaiting Senate approval, told Reuters Insider in an interview that the Fed's plan was an insurance policy at a time the global economy faces risks.

A deal, reported by several media including the New York Times on Tuesday, would give Google an important window into a fast-growing $91 billion local advertising market.

But Google's shares fell 4.5 percent, partly on concern it may shell out too much for a business likely to face increasing competition. Reports of the deal came as the European Union announced plans to investigate Google's search practices.

"Investors think that might be overpaying," Kaufman Brothers analyst Mayuresh Masurekar said of the reported $5 billion-plus deal.

"There are no barriers to entry. There is nothing unique to what they're doing," he said of Groupon, "so there is a risk that Google overpays for Groupon at this point."

But he added that buying Groupon could help Google make further inroads into a local advertising market that analytics firm Borrell Associates estimates will be worth $91.1 billion in 2010.

Groupon sends its members daily e-mails with about 200 discounts for goods and services. The deals are activated only when a minimum number of people agree to make a purchase, giving Groupon clout to negotiate steep group discounts on products and services.

Wedbush Securities analyst Lou Kerner said that daily-deals service dovetails with Google's search advertising business, with both focused on helping merchants acquire customers.

"Google is building a mosaic of marketing solutions for businesses," said Kerner. "So having this kind of flash-sale side of the business, which will all be automated, just makes a ton of sense."

A Google spokesman said the company does not comment on rumor or speculation. A spokeswoman for Groupon declined comment.

A WEB PHENOM

Groupon -- called the fastest-growing Internet start-up in history -- does not disclose financial figures, though analysts estimates for the two-year old company's annual revenue run rate range from $400 million to $600 million.

The company founded by music graduate Andrew Mason, who lives in Chicago with his girlfriend and 20 cats, has been on a tear. Its subscriber base is expected to grow to 25 million in 2011 from 13 million this year.

Its backers include Digital Sky Technologies, which is also invested in Facebook.

"It's been one of the fastest growing companies in history and that growth is going to be accelerated being part of the Google platform," Kerner said.

Obama named Treasury Secretary Tim Geithner and budget director Jack Lew to work with congressional Republicans and Democrats on a deal to prevent broad tax increases from hitting middle-income Americans next year.

The working group will also tackle the issue that most divides the two political parties: what to do about extending tax cuts for the wealthiest Americans.

At their first White House meeting since the November 2 congressional election, Obama and Republicans stuck to their divergent positions but the president said they agreed the issue must be resolved by the end of this year.

"We agreed that there must be some sensible common ground, so I appointed my Treasury Secretary, Tim Geithner, and my budget director, Jack Lew, to work with representatives of both parties to break through this logjam," Obama said.

If no agreement is reached, all tax-paying Americans could see higher bills next year, giving Republicans a chance to score politically by making tax cuts their priority when taking control of the House of Representatives in January.

Finding common ground before then will be tricky.

Chris Van Hollen, a top Democrat in the House of Representatives, said the chamber could vote on Thursday to extend lower tax rates on income levels up to $200,000 for individuals or $250,000 for couples, allowing rates for the wealthiest 2 percent of Americans to rise.

That vote is seen as a gesture to liberal Democrats, who want to go on record opposing an extension for top earners. If the measure passes the House, it will likely die in the Senate, where Democrats would not have the votes to make it law.

Knowing that, the president may have to agree to extend cuts for Americans of all income levels for one to three years -- an onerous option to many Democrats but one that may be the most likely outcome if the two sides agree on anything at all.

But many analysts are not optimistic.

Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group, said there was less than a 50 percent chance that the tax cuts will be extended.

WIDE DIFFERENCES

Obama said he and many Democrats continue to believe it would be "unwise and unfair" to spend $700 billion to extend tax cuts for the wealthiest Americans while also trying to bring down the U.S. deficit.

Republican leaders, emboldened by gains in the elections, argued it would be better for the economy if tax cuts for all Americans were extended.

"Things can change but we are talking about Thursday," Representative Chris Van Hollen, a member of the Democratic leadership, said after meeting with other lawmakers.

Lawmakers are scrambling to reach a deal before the end of the year to delay expiration of tax cuts enacted under former President George W. Bush. Democrats want extension of lower rates for income up to $200,000, while Republicans want lower rates for income above that amount to be extended as well.

Earlier Tuesday, congressional leaders met with President Barack Obama, where they agreed to form a working group to resolve the issue.

"It was very positive in the spirit of moving forward and doing so in a way that helps to create jobs, reduce the deficit and lower taxes for the middle class," House Speaker Nancy Pelosi said after the meeting.

Still, Democrats are divided on strategy.

Heading into a Democratic House leadership meeting to discuss the issue, Representative John Larson said "extension of all the tax cuts in the House is pretty much a non-starter."

Others said there is room for compromise. Representative Richard Neal, who heads a tax subcommittee in the House, said there needed to be a vote on middle-class only, even if it cannot pass the Senate.

"Both sides are probably going to need a vote before they come to some middle ground," Neal said. "Middle ground is not inescapable."

Neal has advocated a compromise where taxes would go up only on income above $500,000. More liberal members, however, may not be enthusiastic about that benchmark.

(Reporting by Kim Dixon; writing by Andy Sullivan; editing by Mohammad Zargham)

Still, a faster-than-expected fall in prices for U.S. single-family homes in September underscored the hurdles remaining for the recovery.

The Conference Board, an industry group, said its index of consumer attitudes increased to 54.1 in November, the strongest since June, from a revised 49.9 in October. Analysts polled by Reuters forecast a reading of 52.6.

Separately, the Institute for Supply Management-Chicago's business barometer rose to 62.5 in November, up from 60.6 in October and above a forecast from economists.

The nation's high unemployment rate has fueled worries about the consumer's ability to spend, although U.S. store chains showed a strong start to the holiday shopping season after last Thursday's Thanksgiving holiday.

The confidence data "backs up what we've been seeing in retail stores, which is that consumers have been spending," said Wayne Kaufman, chief market analyst at John Thomas Financial n New York.

Standard & Poor's/Case-Shiller composite index on Tuesday showed home prices in 20 metropolitan areas declined 0.8 percent in September from August on a seasonally adjusted basis, more than the decline of 0.3 percent expected by economists in a Reuters poll.

Prices rose 0.6 percent from a year earlier, S&P said, but that was slower than the 1.1 percent expected.

"The data confirms what I think a lot of economists suspected, which was that we would see house price weakness again after the expiration of the first-time home-buyer tax credit," said Christopher Low, chief economist at FIN Financial in New York.

In the U.S. markets, lingering worries about euro-zone sovereign debt overshadowed the data, pushing U.S. stocks lower, benchmark 10-year Treasury note prices higher and the dollar up against the euro.

(Additional reporting by Corbett Daly in Washington and Ryan Vlastelica and Emily Flitter in New York; Editing by Padraic Cassidy)

Obama will host Republicans John Boehner, the next Speaker of the House of Representatives, and Mitch McConnell, the party's leader in the Senate, as well as Democrats Nancy Pelosi, the current Speaker, and Harry Reid, the Senate Majority Leader, at 10:30 EST at the White House.

Taxes will be at the top of their agenda.

With a broad victory in November 2 elections behind them, Republicans are eager to force Democrats to agree to extend Bush-era tax cuts for wealthy Americans as well as the middle-class constituency that concerns Obama the most.

Democrats have been in disarray about how to proceed, despite an impending deadline: the tax cuts expire at the end of this year, and Obama is keen to avoid a situation in which American families making less than $250,000 a year face a tax hike on Jan 1.

To prevent that, he may have to agree to extend cuts for Americans of all income levels for one to three years -- an onerous option to many Democrats, but one that may be the most likely outcome if the two sides agree on anything at all.

Obama has said the United States cannot afford to pay the $700 billion it would cost to extend tax cuts for the rich, but he has also signaled a willingness to compromise after the "shellacking" his party received in this month's election.

The White House said a deal was unlikely to be reached at Tuesday's meeting, which Obama said he hoped would jump-start a better relationship between him and the newly empowered Republicans.

"My hope is that tomorrow's meeting will mark a first step toward a new and productive working relationship," Obama said. "Because we now have a shared responsibility to deliver for the American people on the issues that define not only these times but our future -- and I hope we can do that in a cooperative and serious way."

GET THE JOB DONE

Boehner and McConnell, who could become Obama's main adversaries next year, wrote in an opinion piece that their party would insist on extending tax cuts for everyone during the "lame duck" congressional session that ends this year.

Republicans will control the House and have greater strength in the Senate next year.

"If President Obama and Democratic leaders put forward a plan during the lame-duck session to cut spending and stop the tax hikes on all Americans, they can count on a positive response from Republicans," the two men wrote in a Washington Post piece published on Tuesday.

"If the president and Democratic leaders don't act before the end of the year, however, House and Senate Republicans will work to get the job done in the new Congress. But we hope it doesn't come to that."

The Republicans will put that position on the table during the meeting with Obama, which will also be attended by Vice President Joe Biden, Treasury Secretary Tim Geithner, budget director Jack Lew and other congressional leaders.

Obama invited the congressional leaders for a White House dinner earlier this month, but it was put off for scheduling reasons, which some Democrats interpreted as a Republican snub of the president's outstretched hand.

(Additional reporting by Kim Dixon and Thomas Ferraro; editing by Chris Wilson)

Japanese companies cut production for the fifth month and by the biggest margin since February 2009, while South Korea's industrial output fell for the third month in a row, disappointing markets which had bet on a rebound.

In contrast, India asserted itself as a regional standout, reporting on Tuesday that its economy grew 8.9 percent in the past quarter from a year earlier.

Asia's third-largest economy handily beat market forecasts, but it has a long way to go to become a global source of demand that could fill the void left by debt-ridden Europe and the United States, which are struggling to take off.

The fall in Japan's output was expected -- in fact a drop of 1.8 percent was smaller than the forecast 3.3 percent decline -- after a key stimulus measure, incentives for buyers of fuel-efficient cars, expired in September, and exports continued to cool.

The drop, however, cemented expectations that the world's third-largest economy after the United States and China would contract in the final quarter of the year after a stimulus-driven spurt in the third quarter.

South Korea, among the first economies to regain cruising speed after the global recession, is also losing steam, though Seoul still bets on solid export growth next year.

"The inventory rebuilding cycle after the recession has come to an end, and what we're left with is final domestic demand, which isn't doing that well across the globe," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.

"We will see some slowdown in G3 economies and Asia next year. With the European situation unraveling, the risks are more conspicuous."

Weak output reports added to the bearish tone in financial markets, with Asian stocks .MIAPJ0000PUS and the euro under pressure from fears that other euro zone nations may be forced to seek help after Ireland's 85 billion euro rescue.

ASIAN ECONOMIES COOLING MORE THAN EXPECTED?

The numbers follow reports from across Asia that showed most economies were losing traction in the third quarter faster than thought as the initial spurt of foreign demand late last year and early in 2010 waned.

Economists had long expected Asia and the world economy would slow in the second half of this year and early in 2011 as the rebuilding of inventories that had been depleted during the recession was drawing to an end and the effects of stimulus packages were wearing off.

But the cool-down came sooner and turned out to be more pronounced than many economists had anticipated. The economies of the Philippines, Thailand and Singapore all contracted in the past quarter, while growth in South Korea, Taiwan and Indonesia slowed markedly.

That leaves China, which slowed only marginally to a 9.6 percent annual clip in the third quarter, and India, as the mainstays of growth in the region.