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The 3-2 decision on Tuesday highlighted a huge divide between those who say the Internet should flourish without regulation and those who say the power of high-speed Internet providers to discriminate against competitors needs to be restrained.

But the FCC did allow Internet providers like Comcast, AT&T Inc and Verizon Communications Inc to "reasonably" manage their networks and to charge consumers based on levels of Internet usage.

Wireless carriers like Sprint Nextel Corp, and Deutsche Telekom AG T-Mobile would get slightly more discretion to manage their networks but could not block access to websites, nor access to competing voice and video applications.

The FCC is also requiring broadband Internet providers to publicly disclose their network management policies.

The rules are expected to go into effect early next year but FCC Chairman Julius Genachowski said consumers should expect few changes.

"In many respects, this is about preserving the freedom and openness of the Internet that has worked for many years," he told reporters after the FCC met in an open meeting.

LEGAL HURDLES

Experts say legal challenges could tie the rules up for years. "A definitive judicial resolution is still 3-5 years down the road," predicted Michael Botein, professor of law and director of the media law center at New York Law School.

Nomura Equity Research analyst Michael McCormack said there was a high probability the rules would be softened or nullified by either the courts or Congress.

Approved by Genachowski and fellow Democrats Michael Copps and Mignon Clyburn, the rules were quickly condemned by Republicans and many companies as excessive and unnecessary.

"Litigation will supplant innovation. Instead of investing in tomorrow's technologies, precious capital will be diverted to pay lawyers' fees," FCC Commissioner Robert McDowell warned.

McDowell and Republican colleague Meredith Attwell Baker voted against the rules, and predicted they would be overturned in court.

But Copps said he wished the FCC had taken stronger action, saying previous communications technologies had fallen victim to consolidated control, a reference to the AT&T telephone monopoly, later broken up in an antitrust lawsuit.

"In years to come, I hope we can look back on this day as an important turning point in the struggle to ensure the continued openness of the Internet against powerful gatekeeper control," said Copps.

U.S. stock indexes continue to make new highs after taking out key technical resistance levels. The S&P 500 has rallied nearly 6 percent this month to two-year highs, and is up around 21 percent from its lows this year.

John Brady, senior vice president at MF Global in Chicago, said he expects the market to move either slowly sideways or higher as S&P 500 futures work off an overbought condition shown in the seven-day and nine-day Relative Strength Index (RSI).

"It's a grind trade higher on not a whole lot of volume," he said. "A trade between 1,250 and 1,230 (in the S&P 500) seems really well contained, and any profit taking will probably be modest."

The RSI provides a measure of higher closes to lower closes over a given trading period.

Adobe Systems Inc (ADBE.O) forecast earnings late on Monday sharply above Wall Street's projections, contrasting with a pessimistic outlook three months ago. Its shares surged 5.2 percent to $30.73 in premarket trade.

Alpha Natural Resources Inc (ANR.N) made an offer for rival U.S. coal miner Massey Energy Co (MEE.N), the Wall Street Journal reported, citing members of Massey Energy's board. Massey shares rose 2.1 percent in premarket trade to $52.90.

S&P 500 futures rose 6 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 48 points, while Nasdaq 100 futures rose 7 points.

The S&P 500 has gained for the last 3 weeks. The index broke through the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide earlier this month. Technicians say the next stop is the 76.4 percent retracement at 1,362.

"It looks as though the Santa year-end rally continues," said Peter Cardillo, chief market economist at Avalon Partners in New York. Cardillo said earnings and mergers were supporting a technically strong market.

Dutch group DSM (DSMN.AS), the world's largest vitamins maker, is buying U.S. baby food ingredients maker Martek Biosciences Corp (MATK.O) for $1.1 billion, sending its shares up 34 percent to $31.33.

Jabil Circuit Inc (JBL.N) posted late on Monday first-quarter results that topped analyst estimates, helped by growth across segments, and forecast a robust second quarter, sending shares of the electronics manufacturing services provider up nearly 8 percent in premarket trading.

Wabco Holdings Inc (WBC.N), a supplier of safety and control systems for commercial vehicles, raised its full-year outlook and its shares rose 4.5 percent in premarket trades.

European stocks were up 0.9 percent in morning trade in thin volume, with record-high copper prices helping mining stocks. Investors brushed aside Moody's warning it may downgrade Portugal's debt' rating.

(Editing by Padraic Cassidy)

China, the world's new economic powerhouse, urged European policymakers to demonstrate as a matter of urgency that they can contain and then rectify the euro zone's debt problems.

Ratings agency Moody's said it may cut Portugal's rating by one or two notches within three months, citing weak growth prospects as the government seeks to cut its debt, and climbing borrowing costs, although it said its solvency was not in question.

"The likely deterioration in debt affordability over the medium term and ongoing concerns about the economy's ability to withstand fiscal consolidation ... mean its outlook may no longer be consistent with an A1 rating," said Anthony Thomas, Moody's lead analyst for Portugal.

The cost of insuring Portuguese sovereign debt against default rose in response and the euro slipped.

Spain cleared its final debt sale of the year, but predictably had to pay a higher price and analysts warned of tough times ahead in 2011.

The yield on Spain's three month treasury-bill issue rose to 1.804 percent from 1.743 percent on November 23, while six-month paper cost 2.597 percent, up from 2.111 percent.

"All in all it's a reasonable result in current conditions, if far from impressive. It's going to be testing times for Spain, Portugal and even Italy heading into 2011," said Orlando Green, analyst at Credit Agricole.

A pre-Christmas market lull has taken some of the heat off peripheral euro zone debt but the crisis will surely flare up again in 2011 until or unless policymakers act decisively.

Already this month, Moody's has put Spain and Greece on review for possible downgrades and cut Ireland's rating by a savage five notches, while Standard & Poor's said it may cut Belgium's debt rating next year. Analysts said markets were pricing in even more doom for the euro zone's weaker members than the ratings agencies.

"Really the rating agencies are playing catch up with events and arguably they've got a long way to go to get back up to speed -- they've been very much a lagging indicator throughout the crisis," said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets.

European Union leaders failed, at a summit last week, to agree any specific new measures to stop contagion spreading from Greece and Ireland, which have received EU/IMF bailouts, to other high-deficit countries such as Portugal and Spain.

But they did agree to create a permanent financial safety net from 2013 to handle future crises, which may require bond investors to share some of the pain.

Olli Rehn, the EU's economic and monetary affairs commissioner, told Reuters Insider the debt crisis was akin to a "forest fire" which the EU was determined to contain.

"We will do whatever it takes to safeguard the financial stability in Europe," said Rehn.

Adobe Systems Inc (ADBE.O) will be in focus after it issued an earnings forecast sharply above Wall Street projections, contrasting sharply with a pessimistic outlook three months ago when it was concerned about the weak economy. Its shares surged more than 7 percent afterhours, and were up 4.4 percent on Frankfurt (ADBE.F) on Tuesday.

Genzyme Corp (GENZ.O) held its second investor meeting in two months to argue that its most promising experimental drug will capture five times the sales that Sanofi-Aventis (SASY.PA) has assumed in a hostile $18.5 billion takeover bid.

Dutch chemicals group DSM (DSMN.AS) said on Tuesday it would buy Martek Biosciences Corporation (MATK.O) for $1.087 billion (829 million euros) in cash to specialize further in the niche food nutrition industry.

Constellation Brands Inc (STZ.N) is close to selling most of its non-U.S. wine portfolio, the Wall Street Journal reported on Monday, citing people familiar with the matter.

Alpha Natural Resources (ANR.N) has made an offer for rival U.S. coal miner Massey Energy (MEE.N), the Wall Street Journal reported, citing members of Massey Energy's board.

Toronto-Dominion Bank (TD.TO) is close to an agreement to buy Chrysler Financial from private equity firm Cerberus Capital Management CBS.UL for $6.3 billion, a source familiar with the matter said on Monday.

Jabil Circuit Inc (JBL.N) posted market-beating first-quarter results, helped by strong growth across segments, and forecast a robust second quarter, sending shares of the electronics manufacturing services provider up 3.5 percent in trading after the bell.

U.S. diversified manufacturer 3M Co (MMM.N) denied on Monday a published report that its top executive, George Buckley, was seeking to step down before his contract expires in early 2012.

Oil prices rose for the third straight session on Tuesday, supported by cold weather in the United States and Europe, seasonal gasoline demand and an expected drop in U.S. crude stocks.

European stocks were up 0.7 percent in morning trade in thin volume, with record-high copper prices helping mining stocks while investors brushed aside Moody's warning it may downgrade Portugal's debt rating.

On the earnings front, ConAgra Foods (CAG.N), Carnival Corp. (CCL.N), Cintas Corp. (CTAS.O), Nike (NKE.N) and Red Hat Inc (RHT.N) are among companies expected to report results.

U.S. stocks tacked on further gains to push the S&P 500 to a two-year high on Monday, continuing a steady upward march investors believe will continue in 2011.

The Dow Jones industrial average .DJI dipped 13.78 points, or 0.12 percent, to 11,478.13. The Standard & Poor's 500 Index .SPX added 3.17 points, or 0.25 percent, to 1,247.08. The Nasdaq Composite Index .IXIC rose 6.59 points, or 0.25 percent, to 2,649.56.

(Reporting by Blaise Robinson; Editing by Hans Peters)

Its shares surged more than 7 percent after-hours.

The world's biggest maker of design software forecast on Monday that it will post current-quarter profit, excluding items, of 54 to 59 cents a share, beating the average analyst forecast of 51 cents, according to Thomson Reuters I/B/E/S. It also projected revenue of $1 billion to $1.05 billion, ahead of the average forecast of $992 million.

That forecast marked a sharp contrast to one issued three months ago when problems in key markets in Japan and the U.S. educational sector caused Adobe to warn that revenue would fall short of Wall Street expectations. As a result, investors had been anxious about the forecast for the first quarter, issued on Monday.

The company also posted a profit, excluding items, of 56 cents per share for the fourth quarter, which ended December 3. That beat the average forecast of 52 cents. Quarterly revenue of $1.0 billion beat the average forecast of $988 million.

Global Equities Research analyst Trip Chowdhry said that Adobe had been too conservative in its previous forecast, issued in September, because executives were spooked by tough economic conditions.

"Overall, the economy has improved a lot since then," Chowdhry said.

Still, sales at Adobe's creative solutions business, which includes its flagship software package Creative Suite 5, declined to $542 million in the fourth quarter from $550 million in the third quarter. The software maker had forecast this would happen, blaming economic weakness that hurt sales in Japan and to educational customers in the United States.

CS5 is a collection of more than a dozen programs for editing photos, videos and sound, creating interactive websites and designing print publications. The package, which was released last spring, includes Photoshop, Illustrator and Dreamweaver.

Adobe charges from $1,899 to $2,599 for CS5, or $599 to $899 to upgrade from an earlier version.

Shares of Adobe closed at $29.18 on the Nasdaq and surged 7.2 percent to $31.30 in extended trading.

(Reporting by Jim Finkle, editing by Matthew Lewis)

A deal for the lender could be announced as soon as Tuesday, the source said.

A deal would help Cerberus recoup a big chunk of its disastrous $7.4 billion purchase of Chrysler Group, the automaker. It would also help TD, Canada's No. 2 bank, add to its extensive U.S. East Coast assets.

Cerberus, which is led by co-founder Stephen Feinberg, would retain about $1 billion in assets as part of the deal, the Wall Street Journal reported separately.

TD and Cerberus declined to comment.

Chrysler Financial, the former lending arm of the automaker, had its operations reduced as part of a U.S. government-sponsored restructuring of Chrysler and General Motors last year.

Cerberus, which bought Chrysler in 2007, lost control of the automaker during its restructuring. It held on to the financing company.

Ally Financial Inc, the auto and mortgage lender formerly known as GMAC, took over some of the unit's operations in connection with the restructuring.

The deal would be the latest in a series of foreign asset purchases by big Canadian banks, which exited the financial crisis in stronger shape than most rivals, and have been seeking to capitalize by buying up assets.

Last week, Canada's Bank of Montreal agreed to buy troubled Wisconsin lender Marshall & Ilsley Corp for $4.1 billion in stock.

TD's U.S. operations include the East Coast TD Bank network, and it owns just under half of online broker TD Ameritrade. TD has made small U.S. retail bank acquisitions in the last two years and bought Commerce Bancorp Inc for $7.7 billion in 2007.

(Reporting by Megan Davies and Cameron French; additional reporting by Paritosh Bansal; Editing by Frank McGurty and Gunna Dickson)