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Wednesday's data which showed the U.S. economy expanded at a slightly higher-than-expected pace of 2.6 percent in the third quarter came after recent data such as retail sales indicated economic activity has accelerated in the last few months.

The Asia-ex Japan index for commodity shares as measured by MSCI .MIAPJMT00PUS climbed within sight of a recent 2- year peak as investors bet that a healing U.S. economy along with the ongoing rise of China and India would continue to fuel demand for commodities amid tight supplies.

The S&P/Goldman commodities index .SPGSCI, which has a higher weighting of oil and is therefore more relevant to Asia due to its huge demand, also approached a fresh 26-month peak.

U.S. crude oil for delivery in February traded at $90.68 per barrel at 0647 GMT (1:47 a.m. ET), 12 cents below Wednesday's peak.

The 30-day correlation between the S&P 500 and the same commodities index has been between a high 0.87 and 0.94, indicating that investors view both asset classes with a similar degree of bullishness.

That brightening growth view has encouraged analysts to revise upwards their projections for the U.S. and pushed Treasury yields up nearly 100 basis points since the start of November, when the Fed launched its second round of quantitative easing.

"The global economy looks a whole lot happier than it did six months ago. Fears of a double-dip have faded," HSBC economists said in a note while upgrading their 2011 global growth forecasts by nearly half a percentage point to 3.3 percent led by Asia.

That growing optimism was reflected in latest Reuters polls which showed investment houses raising their equity holdings, increasing exposure to high-yield credit and cutting back on government debt.

FAIRLY PRICED

Asia Pacific stocks as measured by MSCI .MIAPJ0000PUS were slightly higher. Thin year-end liquidity and a holiday in Japan meant activity was limited after investors recently banked some profits when Asian stocks hit 2- year peaks.

According to Thomson Reuters IBES data, 12-month forward price/earnings multiples for Asia-ex Japan shares was hovering close to its 10-year average of 12.83 -- indicating that stocks are fairly priced at current levels.

But in a grim reminder that the euro zone's debt crisis is far from over, the euro plumbed to a record low versus the Swiss franc overnight, with traders citing some buying interest emerging from players in the region including central banks.

While the 2011 outlook for the euro continues to be bearish, it seems sandwiched between good sovereign demand in the high 1.30's and decent selling interest on 100 pip rallies.

Ten-year U.S. Treasuries were largely unchanged at 3.35 percent with benchmark yields holding below a seven-month high tested last week. Ten-year Treasury futures expiring in March 2011 were largely unchanged.

"The crisis showed us that it is not sufficient to limit public debt as foreseen in the Maastricht Treaty. Ireland stuck to these criteria and finds itself nevertheless in difficulty," Lagarde said in an interview with the Sueddeutsche Zeitung.

"The EU must not look just at the budgets, it must monitor how the economies in the member states develop."

Countries that set out to boost exports and increase investment in a certain sector, for example, would directly affect other EU countries.

"I don't think it is possible to take away sovereignty over budgets from national states, but we could coordinate with each other already when we are preparing tax legislation. Germany and France plan exactly that - more and more we want to coordinate already when we draft our budget plans for the coming years," she explained.

"Furthermore, I can also imagine creating an arbitration body (for closer economic policy coordination)," Lagarde said.

European countries' diverging tax rates have become a subject of tension. In negotiations on Ireland's EU/IMF bailout last month, France and Germany wanted Ireland's ultra-low corporation tax rate -- long seen by higher-tax European countries as unfair competition -- to be addressed but Dublin made clear the tax rate was non-negotiable.

Lagarde, in the interview, acknowledged that all 27 member EU states were unlikely to agree to such a wide-ranging move to coordinate economic policy, with the UK likely to vent fierce opposition, but she said some countries outside the euro zone would be interested.

"I doubt that a coordinated economic governance would be possible with all 27 states. Great Britain, for example, disagrees entirely on certain things. But that shouldn't hold up all the others," she said.

Lagarde rejected the idea of issuing common euro zone bonds -- which some European policymakers and analysts say would help ease market concerns about peripheral euro zone debt -- at least until member states have aligned themselves more closely.

"Definitely not at present," she said, when asked under what conditions France would support debt jointly issued by all 16 states.

"Before we introduce euro bonds, we first need a closer economic governance," she said.

She also told the newspaper that the French government was committed to lowering its debt and was currently planning to propose a tax reform prior to presidential elections in 2012.

(Reporting by Christiaan Hetzner; Editing by Susan Fenton)

Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, reflecting a higher than previously estimated pace of inventory accumulation, the Commerce Department said in its final estimate of third-quarter GDP on Wednesday.

Separately, sales of existing homes rose 5.6 percent to a seasonally adjusted annual unit rate of 4.68 million units, the National Association of Realtors said, slightly below expectations for 4.71 million unit pace.

Economists, who had expected GDP growth to be revised up to a 2.8 percent pace, were little fazed and pointed out that recent data suggested growth picked up in the fourth quarter.

"The more recent data suggests we're seeing reasonably healthy retail sales growth, pretty healthy investment spending, some growth in employment, so maybe the core growth or final sales growth is starting to accelerate in the fourth quarter," said Zach Pandl an economist at Nomura Securities International in New York.

U.S. stocks edged higher to extend four days of gains that drove the broader Standard & Poor's 500 index to levels not seen since before Lehman Brothers went bankrupt two years ago. Prices for U.S. government debt were slightly down, while the dollar was flat against a basket of currencies.

The economy expanded at a 1.7 percent rate in the second quarter.

Economists expect growth to remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.

The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.

Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.

Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.

CONSUMER SPENDING NOT AS ROBUST

The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.

Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.

Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.

Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.

JPMorgan, whose investment bank has been run by Jes Staley since last year, withstood the poorest period for advisory income in Europe for eight years to maintain a slim lead on its rivals, Thomson Reuters data showed on Wednesday.

But its investment banking income in Europe almost halved compared to last year as the debt crisis stunted issuance and hit profits at most banks, according to the data which was co-produced with research firm Freeman Consulting.

The fee erosion at JPMorgan was particularly apparent in equity capital markets (ECM) in Europe. The bank was down by more than $500 million in equity fees compared with last year, dropping to second place behind Goldman Sachs (GS.N).

JPMorgan also slipped down the ECM fee rankings in Asia, 2010's biggest income battleground after a rush of first time listings there helped global initial public offerings (IPOS) double globally compared to last year.

The bank dropped from second to fourth place, overtaken by Goldman Sachs and Morgan Stanley (MS.N) as Switzerland's UBS (UBSN.VX) held on to the top spot.

JPMorgan missed out on the lion's share of the commission on some of the biggest Asian IPOs this year, featuring as one of the lower-ranking banks handling deals such as AIA Group's listing.

The bank relinquished the top ECM fee spot on a global basis to Morgan Stanley (MS.N), which managed to increase its market share in Asia this year.

But JPMorgan once again pocketed the biggest share of global debt capital markets (DCM) fees, even as bond issuance by companies, sovereigns and other borrowers also fell 6 percent worldwide compared to 2009.

In a shrinking market, JPMorgan gained on its rivals, raking in $1.582bn in global DCM fees -- marginally more than it made during a record 2009 for most banks.

This helped JPMorgan clinch the top spot in the worldwide investment banking fee rankings, with overall fees brought in by all banks actually growing to their highest level since 2007, the data showed.

The overall growth came despite a tough year in Europe, where billions of dollars worth of initial public offerings (IPOs) being pulled or postponed.

Debt issuance in euros so far this year fell by 23 percent compared to the corresponding period in 2009, a drop mirrored by the investment banking fees up for grabs dwindling to $13.5 billion, marking an eight year low.

JPMorgan's fee income in Europe almost halved compared to 2009, coming in at $994 million, less than $100 million higher than what closest rival Deutsche Bank pocketed. Last year, JPMorgan took home $1.72bn in European investment banking fees. (Additional reporting by Kylie MacLellan; Editing by Greg Mahlich)

Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, the Commerce Department said.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 2.8 percent pace. The economy expanded at a 1.7 percent rate in the second quarter.

But data so far suggests growth accelerated in the fourth quarter and will remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.

The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.

Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.

Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.

The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent rate. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.

Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.

Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.

Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.

Import growth was unrevised, but exports were a bit stronger that previously estimated, leaving a trade deficit that lopped off 1.70 percentage points from GDP.

Residential investment was little changed, contracting at a 27.3 percent rate, instead of 27.5 percent.

The government also revised after tax corporate profits to show a 0.2 percent rise in the third quarter -- the weakest reading since the fourth quarter of 2008 -- instead of 1.0 percent, after increasing 3.9 percent in the April-June period.

The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an annual rate of 0.5 percent instead of 0.8 percent.

That was the smallest increase since records began in 1959. The index increased 1.0 percent in the second quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

The Mortgage Bankers Association on Wednesday said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended December 17 decreased 18.6 percent, reaching its lowest level since the week ended January 1.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.8 percent.

The drop in demand last week was largely a reflection of the lack of interest by homeowners to refinance their existing home loans.

The MBA's seasonally adjusted index of refinancing applications decreased 24.6 percent, reaching its lowest level since the week ended April 30.

"Refinance application volume dropped sharply this week as mortgage rates held near six month highs," Michael Fratantoni, MBA's Vice President of Research and Economics, said in a statement.

"Purchase applications fell for a second week, with the level of applications little changed over the past month, indicating that home sales are likely to remain relatively weak over the next few months," he said.

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, decreased 2.5 percent, reaching its lowest since the week ended November 12.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.85 percent, up 0.01 percentage point from the previous week. Interest rates, however, were below their year-ago level of 4.92 percent.

Rising U.S. Treasury yields, on expectations that consumers pending and tax policy would boost growth, have helped push mortgage rates higher.

The MBA said fixed 15-year mortgage rates averaged 4.22 percent, up from the previous week's 4.21 percent.

The MBA's survey has been conducted weekly since 1990.

More insight into the state of the U.S. housing market will emerge later on Wednesday when the National Association of Realtors releases November existing home sales data. On Thursday the Commerce Department releases November new home sales data.

Boeing Co (BA.N) said it will soon announce the resumption of test flights for its 787 Dreamliner plane, which have been halted since last month due to technical problems.

Microsoft Corp is working on a version of its core Windows operating system for devices such as tablets, according to media reports on Tuesday, and the company said its Windows Phone 7 software is making headway in the booming smartphone market.

Resource-related stocks will be in focus as crude oil prices rose to slightly above $90 a barrel, supported by data showing a drop in U.S. oil and gasoline inventories, a winter cold snap in the United States and Europe amid thin trading volumes.

On the macroeconomic front, investors will wait for existing home sales data at 1500 GMT (10 a.m. ET) and the final estimate of third-quarter GDP at 1330 GMT.

Walgreen (WAG.N), Micron (MU.O) and Bed Bath & Beyond (BBBY.O) are scheduled to announce financial results.

Jacobs Engineering Group Inc (JEC.N) will pay $675 million cash for the process and construction unit of Norwegian engineering services firm Aker Solutions ASA (AKSO.OL), the companies said on Tuesday.

Tibco Software shares (TIBX.O) rose in extended trade on Tuesday after the company reported earnings. The stock was up 5.8 percent at $22.40.

Shares in Nike (NKE.N) and Red Hat (RHT.N) were down 3.3 percent and 2.1 percent respectively in extended trade on Tuesday following their results.

Investors will keep an eye on geopolitical situations. South Korea announced land and sea military exercises on Wednesday including its largest-ever live-fire drill near North Korea just as tension on the peninsula was beginning to ease after Pyongyang's attack on a southern island.

A divided U.S. Federal Communications Commission banned Internet service providers like Comcast Corp (CMCSA.O) from blocking traffic on their networks, provoking warnings the rules would be rejected in the courts and threats from Republican lawmakers to overturn them.

U.S. stocks rose on Tuesday as solid earnings and a flurry of merger activity underpinned a steady upward trend that reinforced investor optimism for the coming year.

The Dow Jones industrial average .DJI added 55.03 points, or 0.48 percent, to 11,533.16. The Standard & Poor's 500 Index .SPX gained 7.52 points, or 0.60 percent, to 1,254.60. The Nasdaq Composite Index .IXIC rose 18.05 points, or 0.68 percent, to 2,667.61.

European shares were flat in early trade on Wednesday, while Japan's Nikkei average .N225 dipped 0.2 percent, backing away from a seven-month intraday high hit earlier, as downbeat comments by the prime minister on the economy prompted investors to adjust positions around new levels.

(Reporting by Atul Prakash; Editing by Hans Peters)

Germany's flagship lender admitted criminal wrongdoing for taking part in fraudulent tax shelters that allowed clients to hide billions of dollars, and agreed to pay up to settle the case, U.S. prosecutors said on Tuesday.

But unlike Swiss rival UBS which suffered a client exodus after an earlier settlement, Deutsche Bank was seen as less likely to face a longer-term reputational damage.

Bank secrecy does not present the same hurdle to Deutsche Bank handing over client data to U.S. authorities if necessary and the financial settlement should draw a line under the matter, a Zurich-based tax lawyer told Reuters.

Deutsche Bank said the deal would not hit profits and its shares were only marginally weaker as markets digested the news.

Several analysts expressed relief that the German bank had managed to settle the case and added that its earnings were unlikely to be impacted by the situation.

"We see it positively that this issue has been settled. Deutsche Bank has made sufficient provisions, that means there will be no earnings impact," Equinet analyst Philipp Haessler, who kept a "buy" rating on Deutsche Bank shares, said.

OTHER BANKS IN FIRING LINE

The Deutsche Bank settlement is part of a larger U.S. government effort to crack down on banks that help wealthy Americans evade taxes and could herald similar settlements with other banks.

"This is probably just the start. There are so many banks out there and they all did the same, so it's easy for the IRS. It's just a question of how much information they have," the Zurich tax lawyer said.

Prosecutors last year settled with Swiss bank UBS, which paid $780 million in fines for helping clients with roughly $20 billion in assets hide their accounts from the U.S. Internal Revenue Service.

Leads from the UBS case are pointing investigators to potential criminal behavior by other banks in Asia and the Middle East, the head of the IRS said earlier this month.

Prosecutors are already moving forward with a probe of clients at Europe's largest bank, HSBC Holdings, some of whom received a letter in June notifying them they are the subject of a criminal probe.

The U.S. Attorney's Office in Manhattan said the Deutsche Bank fine represents the fees the bank earned setting up tax shelters, the taxes and interest the IRS could not collect because of the bank's conduct and a civil penalty of some $149.8 million.

Some of the shelters are linked to accounting firm KPMG, which reached a $456 million settlement with the government in 2005 to avoid prosecution on charges it helped wealthy clients set up questionable tax shelters. Two former KPMG officials went to prison.

The IRS has also offered amnesty to wealthy people who declared their assets, and is now using information from some of those taxpayers to build cases against other banks that facilitate tax evasion.

(Additional reporting by Sudip Kar-Gupta; editing by Alexander Smith and Hans Peters)

Some finance industry professionals are expecting drops as steep as 30 percent after weak trading results that are depressing bank profits and shrinking the bonus pool, according to the poll of more than 25 professionals.

Unlike in other industries, bankers typically rely on year-end bonuses for a large portion of their yearly compensation.

Although most banks have not yet informed staff of their actual bonuses for 2010, the dismal expectations reflect the fact that generally bankers, traders, and salespeople have been told to be ready for a low payout.

"Flat is the new up," one U.S. banker said.

A London-based investment banking analyst said, "You would have to live in cuckoo land to expect bonuses to be up on last year. Even if you're a star performer you're going to be down."

This is a sharp turnaround from last year, when Wall Street bonuses jumped 17 percent on average, according to a report by New York State's comptroller.

The findings from the Reuters/IFR poll are in line with executive search industry reports.

The poll pointed to heftier payouts in Asia, where business is booming, and to flat-to-smaller bonus pools for European and United States bankers.

HOT BUTTON

Bonuses may not be strong, but bankers are receiving higher salaries, which reduces the hit to total income. Many banks have boosted salaries this year on the theory that concentrating compensation into sky-high year-end bonuses encourages reckless risk-taking. Some salaries have doubled, according to compensation consultants.

Even so, bonuses still typically account for about 80 percent of top-level employees' compensation, said Joe Sorrentino, compensation consultant at Steven Hall & Partners in New York.

Banks' revenues have been pressured this year by weaker trading volumes. The one bright spot has been merger advisory, where volumes have risen from last year, but where profits are typically low compared with trading.

Bankers' bonuses became a hot-button issue worldwide after governments provided trillions of dollars to bail out banks during the financial crisis in 2008.

Just a year later, banks were back to big bonuses, attracting the ire of taxpayers and politicians who complained that banks' profits were privatized and losses were socialized.

A formal bid for Mozambique-based Riversdale Mining could spark a bidding war by drawing out other suitors wanting access to what is expected to be the world's second-largest coal exporting market in coming years. A group of state-run Indian firms has said it is looking at Riversdale and other major mining companies are also interested, sources have said.

Rio Tinto (RIO.L) was locked in talks with Australian-listed Riversdale's board over an A$16 per share takeover offer but a final deal has not yet been completed because of some last minute wrangling over price, one source familiar with the matter said Wednesday.

An announcement was expected either later Wednesday or Thursday, one source said, confirming media reports that Rio Tinto had offered around A$16 per share for Riversdale. The sources could not be identified as they were not authorized to speak to the media.

An A$16 per share bid would be a 13.5 percent premium to Riversdale's close on December 3 before news of Rio's interest was announced, but lower than its last trading price of A$16.30.

Shares of Riversdale, which said earlier this month it was talking to Rio about a A$15 per share offer, were placed in a trading halt on Tuesday after newspaper reports about a new offer.

There was some speculation Rio may offer up to A$16.50 but one of the sources said on Wednesday the price was closer to A$$16.00.

Spokesmen for both Riversdale and Rio Tinto declined to comment.

HIGH-GROWTH MARKET

Rio, the world's No. 2 iron ore miner, wants to bulk up on coking coal reserves. Riversdale's large reserves have relatively low costs and are well situated to serve China and India's booming markets.

"With Mozambique emerging as a potentially substantial supplier, the trend will obviously be upwards if you're talking about Africa as a whole," said Andrew Harrington, an analyst with Patersons Securities in Sydney.

Riversdale may eventually supply 5-10 percent of the global market for the key steel-making material, analysts say.

Chinese firms have been investing heavily in coal mines in countries like Australia, South Africa, Indonesia and Russia to meet growing demand, while Indian companies are also stepping up their efforts to secure raw materials.

Five state-run Indian firms last week confirmed they were considering an offer and a source at a member of the consortium said a meeting was planned later on Wednesday to appoint a merchant bank to advise on whether to bid.

"We are inclined toward bidding, subject to the outcome of due diligence," the source said, requesting anonymity.