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MSCI's index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS was up 0.27 percent on the day after touching its highest level since May 2008, prompted by optimism on global economic growth.

Japan's Nikkei .N225, however, was down 0.1 percent, erasing early gains.

Oil kicked off the new quarter in positive fashion with U.S. prices climbing after closing at their highest in 2- years on Thursday against the backdrop of continued fighting in Libya and unrest in the Middle East.

Gold fell on more tough inflation talk from U.S. central bankers after notching a 10th quarterly gain.

Investors are treading cautiously ahead of the latest payroll data from the United States later on Friday.

Another month of solid U.S. hiring, expected in the 200,000 area, should reinforce expectations of further global economic expansion but also of an accelerated shift in policy focus among central bankers to stem inflationary pressure.

"At the moment we're getting dragged higher by the momentum we're seeing in the U.S. economy," said IG Markets analyst Ben Potter in Melbourne.

"We could be at the risk of some profit-taking today as people look ahead to tonight's session but that doesn't seem to be the case at the moment."

Signs of improving business activity and rising inflation globally have led the U.S. Fed and the European Central Bank to ratchet up their inflation rhetoric, causing traders to second-guess whether U.S. and European rates will be on hold this year.

In the U.S., Minneapolis Fed President Narayana Kocherlakota told the Wall Street Journal on Thursday that the Fed could raise rates by the end of 2011, far sooner than expected by financial markets. Most analysts do not expect rate hikes until the second half of 2012.

INFLATION TALK BOOSTS DOLLAR

A recent spate of hawkish comments from Fed officials have helped boost the dollar and U.S. bond yields with two-year yields rising to 0.84 percent, the highest in six weeks.

The dollar index .DXY, which tracks its performance against a basket of major currencies, was up 0.3 percent at 76.071. The greenback has rebounded against the yen, a move that has propelled Asian stock markets because it would help the region's exporters.

The dollar climbed to a six-week high against the Japanese currency in early trading. It has recovered from a record low of 76.25 yen on March 17 before G7 central banks intervened to halt the yen's rise. It last traded at 83.66 yen.

Shares of the company, also known as TEPCO, opened up more than 6 percent after the Mainichi newspaper said the government plans to inject public funds into the firm, although it is unlikely to take more than a 50 percent stake.

"If the stake goes over 50 percent, it will be nationalized. But that's not what we are considering," an unnamed government official was quoted by the daily as saying.

TEPCO has come under fire for its handling of the emergency at its Fukushima Daiichi nuclear complex, triggered by a March 11 earthquake and tsunami that left more than 27,500 people dead or missing.

A series of missteps and mistakes, combined with scant signs of leadership, have undermined confidence in the company. TEPCO shares are down almost 80 percent since the disaster.

The Mainichi quoted a government official as saying: "It will be a type of injection that will allow the government to have a certain level of (management) involvement."

TEPCO officials could not immediately be reached for comment.

The company could face compensation claims topping $130 billion if the nuclear crisis drags on, Bank of America-Merrill Lynch estimated this week, further fuelling expectations the government would step in to save Asia's largest utility.

Under law, TEPCO could be exempt from compensation for nuclear accidents caused by natural disasters. But Mainichi quoted the official as saying it would not be possible to apply the legislation given strong public sentiment.

Anger against the company has seen protests outside its Tokyo headquarters, with people demanding an end to nuclear power and calling the company "criminal."

Investor concern about TEPCO mounted after its president, Masataka Shimizu, was admitted to hospital this week and the company said 2 trillion yen ($24 billion) in emergency loans from Japan's major banks would not cover its rising costs.

Liabilities for compensation claims alone could be up to 11 trillion yen ($133 billion) -- nearly four times TEPCO's equity -- if the nuclear crisis drags on for two years, an analyst at Bank of America Merrill Lynch wrote in a report.

TEPCO has around $91 billion in debt including some $64 billion in bonds. That excludes about $24 billion recently secured in loans from domestic lenders.

At the end of December, TEPCO had equity of about $35 billion, its accounts show.

Bank of America-Merrill Lynch said shareholders were very likely to take a big hit and a rapid resolution of the crisis was the only way to keep costs down.

But the government is unlikely to take more than a 50 percent stake in the company, an unnamed government official was quoted by the daily as saying.

"If the stake goes over 50 percent, it will be nationalized. But that's not what we are considering," the official said.

The company, also known as TEPCO, has come under fire for its handling of the emergency at its Fukushima Daichi nuclear complex, triggered by a March 11 earthquake and tsunami that left more than 27,500 people dead or missing.

A series of missteps and mistakes, combined with scant signs of leadership, have undermined confidence in the company. TEPCO shares are down almost 80 percent since the disaster.

Mainichi quoted a government official as saying: "It will be a type of injection that will allow the government to have a certain level of (management) involvement."

TEPCO officials could not immediately be reached for comment.

The company could face compensation claims topping $130 billion if the nuclear crisis dragged on, Bank of America-Merrill Lynch estimated this week, further fuelling expectations the government would step in to save Asia's largest utility.

Under law, TEPCO co u ld be exempt from compensation for nuclear accidents caused by natural disasters. But Mainichi quoted the official as saying it would not be possible to apply the legislation given strong public sentiment.

Anger against the company has seen protests outside its Tokyo headquarters, with people demanding an end to nuclear power and calling the company "criminal".

Investor concern about TEPCO mounted after its president, Masataka Shimizu, was admitted to hospital this week and the company said 2 trillion yen ($24 billion) in emergency loans from Japan's major banks would not cover its rising costs.

Liabilities for compensation claims alone could be up to 11 trillion yen ($133 billion) -- nearly four times TEPCO's equity -- if the nuclear crisis drags on for two years, an analyst at Bank of America Merrill Lynch wrote in a report.

TEPCO has around $91 billion in debt including some $64 billion in bonds. That excludes about $24 billion recently secured in loans from domestic lenders.

At the end of December, TEPCO had equity of about $35 billion, its accounts show.

Bank of America-Merrill Lynch said shareholders were very likely to take a big hit and a rapid resolution of the crisis was the only way to keep costs down.

But Sokol said on CNBC if he had it all to do again, he would have invested in Lubrizol for himself and not passed the recommendation on to Buffett. He said he did not expect Buffett to want to buy the company and was surprised at how quickly the "Oracle of Omaha" moved to make a deal.

Sokol was seen by many investors as the most likely successor to Berkshire Hathaway's iconic CEO, though he made clear in the interview he did not aspire to the job and wanted to build his own "mini-Berkshire" instead.

Buffett released a letter on Wednesday disclosing that Sokol bought a substantial stake in Lubrizol before urging Buffett to acquire the company, which Buffett did for $9 billion this month. Sokol appeared to have made a profit of at least $2.98 million on his investment.

A well-known securities class action lawyer said on Thursday that institutional investors have already been in touch on the disclosures.

"The timing and the facts surrounding the transaction have justifiably raised an interest and concerns from three of my clients," said Darren Robbins, a partner in the firm Robbins Geller Rudman & Dowd.

"We do know David Sokol to be an honorable man," Robbins added, noting his firm will further evaluate the situation before deciding on any lawsuits.

'CAN UNDERSTAND THE APPEARANCE'

But in his half-hour CNBC interview, Sokol insisted he never had any inside information on Lubrizol and that he bought the shares solely as a good investment for his family.

"I'd like to invest my own money, control a significant piece of it, and control my own schedule," Sokol said, later adding, "I didn't know anything others don't know."

Sokol also said he has on past occasions invested in companies that he suggested Buffett buy, noting one example of a bank that Buffett did not ultimately acquire.

He also said other Berkshire executives have in the past held stock in companies they then identified for investment or acquisition, citing the example of Berkshire Vice Chairman Charlie Munger owning a stake in Chinese car maker BYD (1211.HK) before suggesting it for an investment.

Nonetheless, the chairman of Berkshire units MidAmerican Energy and NetJets told CNBC's anchors he understood how the sequence of events looked, even if he did nothing wrong.

"I can understand the appearance of an issue ... That's why we made it public," he said.

Sokol resigned March 28. He said Buffett did not try to talk him out of resigning. Buffett's letter included an excerpt of Sokol's letter, but the full Sokol letter was not made public.

Berkshire's Class B shares, which are more heavily traded than its Class A stock, fell 2.3 percent to $83.53 in mid-afternoon trade, making them the largest decliner among S&P insurance shares .GSPINSC. It was the stock's biggest single-day decline on a percentage basis in about a month.

(Reporting by Ben Berkowitz and Jonathan Stempel; Editing by Dave Zimmerman, Gary Hill)

A key Buffett lieutenant resigned this week, and said he bought shares in a company he later pitched to his boss. While Buffett said his employee, David Sokol, did nothing unlawful, governance experts said the entire episode was a black mark for a company that has long prided itself on its rectitude.

"It's the kind of behavior that, as a matter of corporate governance, sophisticated companies try to avoid," said John Coffee, a law professor at Columbia University.

Experts said that part of the problem may be that Buffett's company, Berkshire Hathaway, prides itself on having few of the internal controls that other major companies have, and instead banks on the honor of its senior employees.

"The key is the people. That's been his playbook ever since he's started. He knows the rules, and he expects the people he works with to know them too," said Michael Holland, chairman of Holland & Co, which oversees $4 billion in assets and owns Berkshire shares.

Changing the way he runs his business would sting for Buffett, who bets everything on his reputation -- something he made crystal clear in a July 2010 memo to his managers that he released this past February.

"We can't be perfect but we can try to be. As I've said in these memos for more than 25 years: 'We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation.'"

He added: "We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter."

'MANAGE LITTLE'

Buffett likes to brag about the way he runs companies -- by not running them, leaving them instead in the care of what he considers capable executives who do not need his oversight.

"There are managers to whom I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A 'hire well, manage little' code suits both them and me," Buffett said in his annual shareholder letter in February.

Ultimately, by his own admission Buffett is not an operational leader, but a sort of inspirational one. He contents himself to let others run the businesses.

Investors say in this case, he may have picked the wrong person to help him lead.

"If I had any knock against Buffett, is how much he espoused his successor, how this was the right guy, how much he rallied the flag around him as his successor ... and now this guy is gone," said Matt McCormick, portfolio manager at Cincinnati-based Bahl Gaynor Investment Counsel.

(Additional reporting by Dan Wilchins, Jonathan Stempel and Maria Aspan in New York and Sarah Lynch in Washington, editing by Matthew Lewis)

But Sokol said on CNBC if he had it all to do again, he would have invested in Lubrizol for himself and not passed the recommendation on to Buffett. He said he did not expect Buffett to want to buy the company and was surprised at how quickly the "Oracle of Omaha" moved to make a deal.

Sokol was seen by many investors as the most likely successor to Berkshire Hathaway's iconic CEO, though he made clear in the interview he did not aspire to the job and wanted to build his own "mini-Berkshire" instead.

Buffett released a letter on Wednesday disclosing that Sokol bought a substantial stake in Lubrizol before urging Buffett to acquire the company, which Buffett did for $9 billion this month. Sokol appeared to have made a profit of at least $2.98 million on his investment.

In a half-hour interview, Sokol insisted he never had any inside information on Lubrizol and that he bought the shares solely as a good investment for his family.

"I'd like to invest my own money, control a significant piece of it, and control my own schedule," Sokol said, later adding "I didn't know anything others don't know."

Sokol also said he has on past occasions invested in companies that he suggested Buffett buy, noting one example of a bank that Buffett did not ultimately acquire.

He also said other Berkshire executives have in the past held stock in companies they then identified for investment or acquisition, citing the example of Berkshire Vice Chairman Charlie Munger owning a stake in Chinese car maker BYD before suggesting it for an investment.

Nonetheless, the chairman of Berkshire units MidAmerican Energy and NetJets told CNBC's anchors he understood how the sequence of events looked, even if he did nothing wrong.

"I can understand the appearance of an issue ... That's why we made it public," he said.

Sokol resigned March 28. He said Buffett did not try to talk him out of resigning. Buffett's letter included an excerpt of Sokol's letter, but the full Sokol letter was not made public.

Berkshire's Class B shares, which are more heavily traded than its Class A stock, opened 1.6 percent lower at $84.06.

(Reporting by Ben Berkowitz and Jonathan Stempel; Editing by Derek Caney, Lisa Von Ahn, Dave Zimmerman)

Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 388,000 the Labor Department said. The government revised weekly claims data back to 2006 to take into account new seasonal factors.

The claims data falls outside the survey period for the government's closely watched employment report for March, which is scheduled for release on Friday.

Nonfarm payrolls are expected to have increased a solid 190,000 after rising 192,000 in February, according to a Reuters survey, with the unemployment rate seen holding steady at a near two-year low of 8.9 percent.

The labor market is strengthening even though economic growth slowed somewhat early in the year, held back by bad weather and rising energy prices, after a fairly brisk pace in the fourth quarter.

Payrolls processing firm ADP Employer Services said on Wednesday private employers added 201,000 jobs in March.

U.S. stock index futures were little changed after the data, while government bond prices added to gains. The U.S. dollar fell against the euro.

Economists polled by Reuters had forecast claims edging down to 380,000. The prior week's figure was revised up to 394,000 from the previously reported 382,000.

The four-week moving average of unemployment claims -- a better measure of underlying trends - rose 3,250 to 394,250.

A Labor Department official said there was nothing unusual in the claims data. Claims have now held beneath the 400,000 level that is generally associated with steady job growth for three weeks in a row, with the four-week average below that mark for the fifth straight week.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 51,000 to 3.71 million in the week ended March 19, the lowest level since October 2008.

Economists had expected so-called continuing claims to fall to 3.70 million from a previously reported 3.72 million.

The number of people on emergency unemployment benefits dropped 38,838 to 3.59 million in the week ended March 12, the latest week for which data is available. A total of 8.77 million people were claiming unemployment benefits during that period under all programs.

Concerns about the impact on high oil and food prices on global growth and central bank moves to curb inflation have overtaken worries about Japan's nuclear crisis and unrest in the Middle East, but investors remain cautious.

"Shares are modestly expanding gains on continued foreign buying around sectors that are seen bullish," said Chung Seung-jae, a market analyst at Mirae Asset Securities in Seoul.

MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.3 percent on the day, putting it on track for a 4.3 percent gain in March despite a sharp downward spike following the massive earthquake and tsunami which hit Japan on March 11, severely damaging a nuclear power plant and knocking many factories offline.

For the year to date, the Asia ex-Japan index has gained nearly 1 percent.

By comparison, the MSCI world index .MIWD00000PUS was little changed on the quarter, but has gained around 4 percent so far in 2011. Relative weakness in Asia was offset by strong gains early in the year in major U.S. and European indexes as investors rotated from emerging markets to large, developed ones.

A key investment decision for Asian stock investors in the coming months will likely be whether to pile bets on China and the faster-growing economies in Asia over safer but lower-returning investments in developed economies, analysts said.

Gross domestic product of emerging markets will on average expand 6.0 percent in 2011 and 2012, more than double those of developed markets, according to JPMorgan economists.

In Asia, Japan is expected to lag its neighbors as the world's No. 3 economy faces huge rebuilding cost from the twin disasters this month and the still unknown toll from the damaged nuclear plant, which is still leaking radiation.

The yen has declined to the lowest since May 2010 against the euro in the wake of recent hawkish comments by euro zone officials signaling interest rate hikes, and has slid against the dollar as well after U.S. central bank officials indicated they may soon start withdrawing enormous levels of stimulus from that economy.

Japan's Nikkei index .N225 trimmed gains to trade flat after opening higher and following Wednesday's 2.6 percent rally. So far in March, it has shed 9 percent, heading for its worst month since May 2010. Year to date, the benchmark has fallen around 5 percent.

WEAKER YEN BOOSTS EXPORTERS' SHARES

The weaker yen is expected to boost the demand for Japanese goods in overseas markets, though investors remain concerned about the impact of power shortages on Japanese manufacturers following the disasters.

It is also seen as a cheap way to fund higher-yielding assets such as the Australian dollar which reached a 10-month high against the yen and a 29-year high against the U.S. dollar in early trading.

But the yen on Thursday pulled back from its earlier lows, trading flat against major currencies.

The diverging views, on display at the start of a meeting of the Group of 20 leading economies, underscored the difficulty Sarkozy faces to meet his goal of drafting a blueprint for the overhaul of the global monetary order by the end of the year.

"Without rules, the international monetary and financial system is incapable of forestalling crises, financial bubbles and the widening of imbalances," Sarkozy told a gathering of finance ministers, central bankers and prominent academics.

"Without rules and supervision, the world runs the risk of being condemned to increasingly serious and severe crises."

France is the chairman this year of the G20, which brings together developed and emerging economies accounting for some 85 percent of global output.

Beijing, despite being asked to host the forum, has not shown great enthusiasm for the initiative or for Sarkozy's broad plans for reform. China fears the thinly veiled aim is to force it to let the yuan trade more freely and to dismantle its capital controls more quickly than it wants to.

"The reform process will be long-term and complex," Chinese Vice-Premier said in his opening remarks.

TALKING SHOP

The meeting in the eastern city of Nanjing is billed as a seminar to air ideas, not to take decisions.

In that spirit, Sarkozy asked whether it was not time to broaden the Group of Seven industrial countries, one of whose principal purposes is to police the global currency markets.

The group reasserted its role earlier this month when G7 central banks acted in concert to sell the yen. In doing so, it reversed a surge in the currency that threatened to deepen the damage to Japan's economy, already reeling from a devastating earthquake on March 11.

A senior German official, who declined to be identified, said Berlin was also in favor of currency questions being addressed by a broader group than the G7, perhaps incorporating the four BRIC countries -- Brazil, Russia, India, China -- along with Mexico.

But U.S. Treasury Secretary Timothy Geithner questioned whether an international effort was really needed to cure the ills in the global monetary system. Inconsistency in exchange rate policies was the biggest flaw, he said.

Without naming China, he noted that some emerging countries ran tightly managed currency regimes that fueled inflation risks in their own economies, magnified appreciation pressures in others and also generated calls for protectionism.

"This asymmetry in exchange rate policies creates a lot of tension," Geithner said. "This is the most important problem to solve in the international monetary system today."

David Sokol's resignation is a reputational blow for Buffett, the 80-year-old "Oracle of Omaha," who prides himself on his folksy fair-dealing image and handpicks managers who can run businesses in a similarly transparent manner.

"Obviously Warren Buffett prides himself on transparency and this would not appear to be transparent," said Berkshire shareholder Michael Yoshikami of YCMNET Advisors in California. "It's surprising and always amazes me these types of events occur because it just seems so unnecessary."

Buffett said he did not think Sokol broke the law and that Sokol resigned because he wanted to create a family business of his own and devote more resources to philanthropy.

Nonetheless, the sequence of events raises questions about conflicts of interest and the strength of Berkshire's internal controls.

Berkshire's actively traded Class B shares fell 3 percent after-hours.

Buffett said on Wednesday that Sokol bought shares of Lubrizol last December, sold them, then bought more shares in early January.

Sokol subsequently presented Buffett with the idea of buying the company, and made what Buffett called a "passing remark" that he owned some Lubrizol stock. Buffett said he did not probe Sokol's stock ownership further.

The 96,060 shares Sokol bought on January 5-7 would have generated a profit for him of at least $2.98 million based on Lubrizol's share price over those three days and the price at which Buffett agreed to buy the company.

It is unclear why news of Sokol's trading is surfacing now, or whether government investigators have looked into the matter. The U.S. Securities and Exchange Commission and the Department of Justice declined to comment.

Sokol defended himself in an interview with Fox Business that ran late Wednesday.

"There was no inside information. The only reason Warren Buffett mentioned it in the release is because it would have to be brought up anyway when Berkshire put the purchase up for a vote. It's a disclosure issue," he said.

SURPRISE MOVE

Buffett took pains in his statement Wednesday to make clear that he did not fire Sokol, and that Sokol offered his resignation after having asked twice before in recent years to retire. Buffett said he discovered the extent of Sokol's Lubrizol holdings on March 19, but insisted the March 28 resignation came as a surprise.

Nonetheless, a recent regulatory filing by Lubrizol makes clear Sokol had the idea of buying Lubrizol well before taking it to Buffett.

Using Thomson Reuters StarMine data, Reuters Insider compiled a list of more than 80 companies that met Buffett's basic criteria -- namely industry leaders with strong balance sheets that are available on the cheap.

Names like ITW, Cliffs and Eaton feature on the list, along with high-profile international names like Rolls-Royce Group (RR.L) and AkzoNobel. (AKZO.AS)

All of them are trading at enough of a discount to analysts' expected earnings growth for the next five years that Buffett could pay a 20 percent premium and still be getting value in the deal.

"He always wants a simple defensible durable business that will still be here and still be on top of its game in 25 years," said James Armstrong, president of Henry H. Armstrong Associates, which manages about $400 million, around a quarter of which is invested in Berkshire.

The Reuters Insider analysis focused on companies with market capitalizations in the $10 billion to $30 billion range that meet Buffett's publicly stated criteria for deals, including a history of profitability and little debt.

MORE CAPACITY TO DEAL

Buffett made a splash earlier this month in buying lubricant maker Lubrizol Corp (LZ.N) for $9 billion, extending the trend of Berkshire Hathaway's (BRKa.N) recent investments in basic industries.

The deal is Berkshire's biggest since it bought Burlington Northern Santa Fe for more than $26 billion in late 2009, but Buffett is still on the hunt for big deals.

In Berkshire's annual report, Buffett said he is on the lookout for possible acquisitions -- making references to going big-game hunting with an elephant gun.

The company had amassed a cash pile of about $38 billion by the end of last year. When Goldman Sachs (GS.N) buys preferred shares back from Berkshire, the insurance company will pick up an additional $5.5 billion.

"Lubrizol changes his acquisition profile by zero," said Glenn Tongue, managing partner who helps manage around $200 million at T2 Partners.

Tongue estimates that after the Lubrizol deal, Berkshire will still have more than $50 billion of cash on hand at the end of 2011 if the company does not do any more acquisitions.

"He characterized the acquisition exercise as elephant hunting. Lubrizol is not an elephant -- I wouldn't be surprised if he announced an acquisition larger than Burlington Northern this year," Tongue said.

SPECIFIC CRITERIA

Allen, who now runs a Seattle-based investment firm and philanthropic foundation, makes the claim in a forthcoming book of memoirs, excerpts from which were published in Vanity Fair magazine on Wednesday.

Allen, 58, says he overheard a heated conversation between Gates and now Chief Executive Steve Ballmer in December 1982, shortly after Allen told them he was thinking of leaving the company.

"It was easy to get the gist of the conversation," writes Allen in the memoir as reproduced in Vanity Fair. "They were bemoaning my recent lack of production and discussing how they might dilute my Microsoft equity by issuing options to themselves and other shareholders. It was clear that they'd been thinking about this for some time."

Allen, who at that time was receiving treatment for Hodgkin's lymphoma cancer, and was scaling back his work at Microsoft, says he later received apologies from both Gates and Ballmer over the incident.

Allen, who made up the name Microsoft, co-founded the company with Gates in 1975. Two years later, he and Gates agreed to take 36 and 64 percent shares in the company respectively, Allen says in the book, owing to Gates' greater contribution to their first coding job for the new Altair computer, which turned out to be the company's first big break.

The two men's holdings in Microsoft were later diluted as more people joined the company and it issued shares publicly in 1986.

As the company grew, the two clashed over the hiring of Ballmer -- a friend of Gates' from Harvard -- to lead sales and marketing efforts in 1980.

Allen claims in the book that they agreed to give Ballmer no more than 5 percent equity in the company, but says Gates went behind his back to offer Ballmer 8.75 percent.

"It was bad enough that Bill had chosen to override me on a partnership issue we'd specifically discussed," says Allen in his book. "It was worse that he'd waited till I was away to send the letter."

Allen says Gates eventually made up the extra equity given to Ballmer from his own share. Ballmer became CEO in 2000, and is the second-largest individual shareholder behind Gates.

Before he left Microsoft in 1983, Allen claims Gates attempted to buy his shares from him at a bargain price.

"It's not fair that you keep your stake in the company," Allen reports Gates as saying, making what Allen described as a "lowball" offer of $5 a share for his stock. Allen says he wouldn't go below $10. As a result, Allen says he kept his share.

"As it turned out, Bill's conservatism worked to my advantage. If he'd been willing to offer something close to my asking price, I would have sold way too soon," says Allen in the book.

Gates, who has recently been traveling in India working on his own philanthropy projects, did not directly contest Allen's account, but sought to play down friction.

"While my recollection of many of these events may differ from Paul's, I value his friendship and the important contributions he made to the world of technology and at Microsoft," Gates said in an emailed statement.

U.S. private employers added 201,000 jobs in March, according to the ADP Employer Services report. The figure was largely in line with expectations for a gain of 203,000 jobs. The report is jointly developed with Macroeconomic Advisers LLC.

February's figure was revised down to 208,000 from 217,000.

"Basically the number was very much in line with expectations and shows that the labor recovery continues at a reasonable pace," said David Katz, chief investment officer at Matrix Asset Advisors in New York.

"It looks like the U.S. economic recovery continues, and the improving labor market should be a buffer against weak areas like real estate."

The ADP figures come ahead of the government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.

That report is expected to show the economy created about 190,000 jobs in March based on a Reuters poll of analysts, while private payrolls are forecast to rise by 200,000.

A separate report on Wednesday showed the number of planned layoffs at U.S. firms fell in March after spiking up the month before. Employers announced 41,528 planned job cuts this month, down 18 percent from the 50,702 cuts announced in February, according to the report from consultants Challenger, Gray & Christmas, Inc.

Overall, 130,749 job cuts were announced in the first three months of the year, marking the lowest rate of downsizing since 1995.

The highest level of job reductions this year has been seen in the government sector, the report noted. Losses are expected to grow as cash-strapped state and local governments deal with budget problems.

U.S. Treasury prices rose modestly immediately after the ADP data and the U.S. dollar trimmed gains against the euro and yen, while U.S. stock index futures remained higher.

Economists often refer to the ADP report to fine-tune their expectations for the government monthly payrolls numbers, though it is not always accurate in predicting the outcome.

The slow recovery in the jobs market has been one of the biggest hurdles to a sustainable economic recovery, but recent data has raised optimism that improvement in employment is strengthening.

Housing, however, has remained outside of the broader recovery. The Mortgage Bankers Association on Wednesday reported that applications for U.S. home mortgages tumbled last week as higher interest rates sapped demand for loan refinancing.

(Reporting by Leah Schnurr, additional reporting by Ryan Vlastelica and Edith Honan; Editing by Leslie Adler)

The data was largely in line with expectations. Economists surveyed by Reuters had forecast the ADP Employer Services report would show a gain of 203,000 jobs. The report is jointly developed with Macroeconomic Advisers LLC.

February's figure was revised down to 208,000 from 217,000.

"Basically the number was very much in line with expectations and shows that the labor recovery continues at a reasonable pace," said David Katz, chief investment officer at Matrix Asset Advisors in New York.

"It looks like the U.S. economic recovery continues, and the improving labor market should be a buffer against weak areas like real estate."

U.S. Treasury prices rose modestly immediately after the data and the U.S. dollar trimmed gains against the euro and yen, while U.S. stock index futures remained higher.

The ADP figures come ahead of the government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.

That report is expected to show the economy created about 190,000 jobs in March based on a Reuters poll of analysts, while private payrolls are forecast to rise by 200,000.

Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome. (Reporting by Leah Schnurr, additional reporting by Ryan Vlastelica)

Valeant, formed when Canada's Biovail bought U.S.-based Valeant in September for $3.3 billion and took its name, said it planned to propose a slate of directors to replace Cephalon's board with its own nominees.

The $73-a-share bid, which Valeant expects to finance entirely with debt, represents a 24 percent premium over Cephalon's closing share price of $58.75 on Tuesday, and about a 29 percent premium over the U.S. drugmaker's 30-day trading average.

Valeant Chief Executive Michael Pearson said Cephalon in meetings between the companies signaled a belief that its shareholders would not find the Valeant offer compelling. But he plans to talk to Cephalon shareholders directly beginning next week.

"We'd love to do this on a friendly basis and if we get a clear signal that their shareholders are not interested, there's many other things that we can do and we'll move on. We don't have to do this deal," Pearson told Reuters in a telephone interview.

"In next few weeks we'll get a good sense. This is not going to be a long process," Pearson said.

Cephalon shares rose to $72.89 in extended trading after the Valeant bid was announced. Valeant climbed to $51.00 from a close of $44.39 on the New York Stock Exchange.

Pearson said Valeant would consider raising its offer if allowed to do due diligence.

"There will be a lot of pressure on them to at least open their books to due diligence," David Maris, an analyst with Credit Agricole Securities, said of Cephalon management.

"Prior to this offer, we believe Cephalon was fundamentally undervalued," he added.

Cephalon said in a statement its board would consider the Valeant offer, as well as a separate offer it made to acquire Cephalon's non-oncology related assets for $2.8 billion.

The U.S. drugmaker said it will respond to Valeant next week. It advised its shareholders to await that response and said they do not need to take any action regarding Valeant's proposal.

In Cephalon, Valeant would gain a company with strong cash flow, a growing cancer drug in Treanda and several other products, a branded generics business that would fit in with its own, and a promising pipeline of drugs in development.

Pearson, whose company also sells dermatology and neurology products, said it would seek partners for Cephalon's experimental drugs "to diversify the risk and reduce the spend on the R&D side."

Valeant predecessor Biovail has a checkered history that the Cephalon board may take into consideration.

Automatic Data Processing (ADP) is set to release its March employment report at 1215 GMT (8:15 a.m. ET). Economists in a Reuters survey expect 203,000 jobs were created in March versus 217,000 new jobs in February. The figures will give an indication about Friday's widely watched nonfarm payroll numbers.

The Mortgage Bankers Association will release the Weekly Mortgage Market Index for the week ended March 25 at 1100 GMT. The mortgage market index read 524.4 and the refinancing index was 2,471.2 in the previous week.

U.S. chemicals company DuPont (DD.N) extended its $6 billion takeover bid for Denmark's Danisco (DCO.CO) by four weeks and said shareholders of 6 percent of Danisco's stock had accepted the offer.

Challenger, Gray & Christmas Inc will release its report on job cuts for March at 1130 GMT. Challenger reported 50,702 layoffs in the previous month.

Family Dollar's (FDO.N) quarterly earnings report will show how well the company did in keeping shoppers coming back to its nearly 6,900 stores.

TIBCO Software Inc (TIBX.O) fell 7.2 percent after the bell on Tuesday as its first quarter results and outlook failed to impress investors.

Japan upgraded its safety standards for nuclear power plants, the first official acknowledgement that norms were insufficient when an earthquake wrecked one of its facilities, triggering the world's worst atomic disaster since Chernobyl in 1986.

Toyota Motor Corp (7203.T) and Honda Motor Corp (7267.T) took fresh steps to scale back production or reduce orders of some parts in North America as supplies remain disrupted after the March 11 Japan earthquake.

Brent crude was steady near $115 on Wednesday, after falling as much as 0.6 percent on indications that higher fuel prices were weighing on consumer confidence in top user the United States, where crude inventories rose more than expected last week.

European shares hit a three-week high on Wednesday, with the pan-European FTSEurofirst 300 .FTEU3 index of top shares rising 0.9 percent.

Japan's Nikkei stock average .N225 rose 2.6 percent, hitting its highest since a post-quake panic sell-off, as the yen softened against the dollar, but investors said the gains may be short-lived as bargain hunting by foreigners winds down.

On Tuesday, the Dow Jones industrial average .DJI and the Standard & Poor's 500 .SPX both rose 0.7 percent, while the Nasdaq Composite .IXIC added 1 percent.

(Reporting by Atul Prakash; Editing by Hans Peters)

Although not an official policy statement, the paper by Xu Hongcai, a department deputy director at the China Center for International Economic Exchanges, offered a window onto the domestic pressures bearing on Beijing to move away from a dollar-centric global economy.

The China Center, a top government think tank, has represented the Chinese government in organizing a forum on Thursday in Nanjing that will bring together finance ministers, central bankers and academics from the Group of 20 wealthy and developing economies.

Xu's paper, "Reform of the international monetary system under the G20 framework," was published in Chinese on the center's website this week (www.cciee.org.cn).

"Nations around the world have no way of restricting dollar issuance by the Federal Reserve. The current international monetary system lacks both stability and fairness," Xu wrote.

He said the global monetary system had fallen into a "dollar trap." While it would be sensible to reduce dollar holdings in official currency reserves, nations cannot easily cut back, because doing so would only lead the dollar to weaken and so hit the value of their assets, he said.

CHINA'S DILEMMA

China's dollar dilemma is particularly acute, though Xu did not say as much. China had $2.85 trillion in foreign exchange reserves at the end of last year, more than any other country. About two-thirds are estimated to be invested in dollars.

Beijing has repeatedly warned that loose U.S. monetary policy threatens the dollar, but it has continued to accumulate dollar assets at the same time, adding about $260 billion of Treasury securities last year, according to U.S. data.

With the Chinese government determined to limit yuan appreciation, it must buy a large amount of the dollars streaming into the country from its trade surplus and recycle those into U.S. investments.

Xu was not shy about proposing ways to remake the global monetary system.

For a start, he said diversification was needed, with several reserve currencies. Other countries could reinforce these currencies' status by buying or selling them to keep their exchange rates stable, Xu said.

He said the International Monetary Fund should also play a policing role.

"If any international reserve currency depreciates, the IMF would be responsible for issuing a timely alert, increasing international pressure to force the country in question to take measures to stabilize its currency," he said.

LITTLE SUPPORT

Xu's call for regular intervention to keep key currencies steady is unlikely to find much support among developed economies, which have come to view a system of floating, largely market-determined exchange rates as the most stable underpinning of the global economy.

Renewed demand for shares came despite concerns the global economy could be hurt by Japan's struggle to contain the world's worst nuclear crisis in decades, conflicts in Libya and the Middle East and Europe's festering sovereign debt problems.

Concerns over those risks have eased, for now, with expectations that stocks worldwide will move higher into the new quarter, analysts and traders said.

"Global equities are stronger and it's risk-on again," a trader at a U.S. investment bank said.

Japan's Nikkei index .N225 rose 2.4 percent in afternoon trading, after two days of losses. So far in March, it has shed 8.8 percent, heading for its worst month since May 2010. Year to date, the benchmark has fallen 5.3 percent.

Among individual stocks, Tokyo Electric Power (9501.T) was the spotlight again, tumbling nearly 18 percent on concerns that the operator of the quake-stricken nuclear reactors in northeastern Japan may be nationalized.

Other Asian equities have recovered from their losses since a devastating earthquake and tsunami hit northeast Japan on March 11. MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.5 percent on the day. It has risen 4.0 percent so far in March and up 0.6 percent this year.

MSCI's world index .MIWD00000PUS rose 0.3 percent, taking its gains for the year so far to more than 3.1percent, with weakness in Asia offset by strong gains early in the year in major indexes in the United States and Europe as investors rotated from emerging markets to large, developed ones.

The yen dipped to a 10-month low against the euro and neared a three-week trough versus the dollar early in Asia, having suffered broad losses after several chart support levels were breached plus expectations of rising rates in Europe and United States.

In recent days, several top U.S. central bank officials said further bond purchases by the Federal Reserve were not needed to support the economy, while European Central Bank President Jean-Claude Trichet signaled his inflation concerns because of rising food and energy prices.

SHIFT TO GRADUAL POLICY TIGHTENING

"We've had comments from the Fed and a shift in sentiment toward the U.S. policy from a rate perspective that has really pushed U.S.-Japan yield differentials, driving the dollar higher," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong.

The yield gap between two-year U.S. and Japanese government debt has ballooned over the past 1- weeks to a tad more than 61 basis points, the widest since early February.

Two-year U.S. Treasury yields, which are most sensitive to traders' views on changes in Fed policy, hovered at their highest in six weeks at 0.83 percent on Wednesday, while two-year JGB yields have bounced in a tight range of 0.18 percent to 0.25 percent so far this year.

Traders have been adjusting their books and most investors have moved to the sidelines in advance of the last day of the quarter and Japan's fiscal year. Light volume has heightened intraday volatility across financial markets.

Another report on Tuesday showed home prices fell for a seventh straight month in January but held above their post-housing bust low of April 2009.

The reports added to signs the U.S. economy lost momentum in early 2011, although the impact of high energy prices -- aggravated by unrest in Middle Eastern countries -- is likely to be temporary, economists said.

They point to an improving labor market as underpinning growth.

"We are likely looking at a continuing pattern of 'two steps forward, one step back' in terms of the collective mood, given the sources of uncertainty and risk that will not be easily resolved," said Jim Baird, a partner at Plante Moran Financial Advisors Kalamazoo, Michigan.

The Conference Board, an industry group, said its index of consumer attitudes fell to 63.4 in March after hitting a three-year high of 72.0 in February. The March reading was below economists' expectations for a drop to 65.0.

Rising gasoline prices, boosted by unrest in the Middle East and North Africa, are eroding consumer confidence and raising inflation expectations. A separate survey last week showed morale among households at its lowest in more than a year.

The Conference Board found one-year price expectations rose to their highest since October 2008.

Economists said the jump in inflation expectations was unlikely to trouble the Federal Reserve, which has said price pressure from commodities should be temporary. Core inflation, which strips out food and energy costs, is not far from recent record lows.

In Germany, worries about the global economy and inflation drove down consumer sentiment for the first time in 10 months.

U.S. financial markets were little moved by the data.

LOSING SOME MOMENTUM?

The weaker U.S. confidence survey came on the heels of numbers on Monday that showed consumer spending, adjusted for inflation, rose only modestly in February, pointing to a slowdown in first-quarter economic growth.

"It suggests to me that consumer spending is already tracking at about half the rate of growth in the first quarter as it did in the fourth quarter," said Christopher Low, chief economist at FTN Financial in New York.

The apparent hiccup in growth comes as policymakers at the Fed ramp up a debate on whether the economy is strong enough for the central bank to scale back its massive stimulus program.

The justices seemed sympathetic to Wal-Mart in considering whether a small group of women who began the lawsuit against the world's largest retailer 10 years ago can represent a huge nationwide class.

Justice Anthony Kennedy, a moderate conservative who often casts the decisive vote on the nine-member court, said, "I'm just not sure what the unlawful policy is."

Potentially liability could reach billions of dollars.

Even if Wal-Mart loses at the Supreme Court and then at trial, financial analysts said the Bentonville, Arkansas-based company has more than enough cash to make a big payout with little impact on its profits.

A crowd of protesters gathered outside the court, shouting "Fair pay now" and carrying signs such as "Stop discounting the women of Wal-Mart" and "The women of Wal-Mart are not worthless."

Chris Kwapnoski, a 24-year Wal-Mart employee and one of the named plaintiffs in the case, told reporters after the arguments, "We're not going to lose."

She recalled being told by a manager to "brush the cobwebs off" and "doll up" if she wanted advancement.

"Wal-Mart is trying their level best to keep us out of court so the facts will not be presented to the public at large or before a sitting jury," said Betty Dukes, a Wal-Mart employee in Pittsburg, California, who first filed a law suit against the retailer in 2001.

The court is likely to make a ruling by late June. The decision could change the legal landscape for workplace and other class-action lawsuits, affecting a similar case against Costco Wholesale Corp.

JUSTICE SCALIA: "IS THIS REALLY DUE PROCESS?

Businesses say a Wal-Mart defeat could make every large corporation vulnerable to sweeping allegations of employment bias and would water down class-action requirements.

The Supreme Court is only deciding whether the lawsuit can go to trial as a group. If the court rejects the class-action status, the individual women still can sue, both sides in the case say.

Large class-action lawsuits make it easier for big groups of plaintiffs to sue corporations and they have led to huge payouts by tobacco, oil and food companies.

During the session, some justices strongly questioned the women's arguments.

The S&P/Case-Shiller composite index of 20 metropolitan areas declined 0.2 percent in January from December on a seasonally adjusted basis where a Reuters poll of economists forecast a drop of 0.4 percent. Prices in the 20 cities have fallen 3.1 percent year-over-year compared to 3.2 percent expected.

"The housing market recession is not yet over," said David Blitzer, chairman of the index committee at S&P. "At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing."

Eleven of the 20 cities fell to the lowest levels since home prices peaked in 2006 and 2007, while the overall index was just 1.1 percent above the April 2009 low, the report showed.

Unadjusted for seasonal impact, home prices fell 1.0 percent for the month. Only San Diego and Washington, D.C. showed annual price increases.

The Case-Shiller index lags data from the National Association of Realtors, which reported earlier this month U.S. that the median U.S. home price had hit a nine year low in February as home sales volumes plunged 9.6 percent.

In a separate report, the realtors group on Monday said contracts for sales of previously owned U.S. homes rose 2.1 percent in February after two straight declines.

The pending contracts data leads existing home sales by a month or two and suggests some of the recent weakness was due to unusually severe winter weather.

(Reporting by Corbett B. Daly; Editing by Padraic Cassidy)

Such issues include the turmoil in the Middle East and North Africa, the aftermath of the Japanese tsunami, the European sovereign debt crisis and the U.S. fiscal situation and possibility of a government shutdown, Bullard said in prepared statements ahead of a speech in the Czech capital.

"The process of normalizing policy, even once it begins, will still leave unprecedented policy accommodation on the table," said Bullard, who is not a voting member of the Fed's policy setting panel this year.

"The FOMC may not be willing or able to wait until all global uncertainties are resolved to begin normalizing policy," he added, referring to the policymaking Federal Open Market Committee.

Still, he added that the most likely prospect was that the four main risks would be resolved "without becoming global macroeconomic shocks."

Bullard, seen as a centrist on the spectrum of supporters and opponents of aggressive Fed actions to boost the economy, said that U.S. growth prospects had improved since last summer and that an improving economy 18 months post-recession was a "strong positive."

He said on Saturday that the Fed should consider trimming its $600 billion bond purchase programme given solid U.S. economic data.

On Monday, top Fed officials said the U.S. economy still needed support from the Fed's bond buying programme, with some suggesting recent spikes in gas and food price are likely to be short-lived.

The Fed, which has kept short-term rates near zero since December 2008, has been buying U.S. Treasuries since November to push down longer-term borrowing costs and keep the U.S. recovery on track. The program is slated to end in June.

In his Prague remarks, Bullard said monetary policy could not remain ultra-accommodative indefinitely.

"Discussion of the normalization of U.S. policy will likely return as the key issue in 2011," Bullard said.

(Reporting by Jan Lopatka; writing by Michael Winfrey and Jason Hovet; Editing by Hugh Lawson)

Japan's Nikkei index .N225 was down about 0.3 percent in late trading after falling as much as 1.5 percent earlier.

Early price-drops enticed bargain-minded investors who feel stocks are undervalued and poised to rise after Thursday's end of first quarter and the close of the Japanese fiscal year, analysts said.

"Some investors concluded now it's an opportunity to pick up some shares," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. "The broad trend is up and dips are being bought."

Stocks fell initially following Monday's losses on Wall Street and news that plutonium was found in soil at the earthquake-stricken Fukushima nuclear plant.

Heightening the uncertainty for investors, some Japanese companies said there would be delays in reporting full-year financial results as they assessed the damage from the devastating quake and tsunami which hit the country's northeast on March 11, and the impact of widespread power outages which are still preventing many firms from restarting production lines.

Shortages of key components made in Japan have forced some manufacturers, particularly auto makers, to cut back production in North America, Europe and parts of Asia.

MSCI's index of Asian shares outside Japan .MIAPJ0000PUS rose 0.37 percent after slipping 0.06 percent earlier. Australia's S&P/ASX 200 indexed gained 0.47 percent to 4755.80.

In Japan, shares of Fukushima's operator Tokyo Electric Power (TEPCO) (9501.T) were untraded on a flood of sell orders on a newspaper report. The Yomiuri paper citing unidentified government sources as saying there was talk about temporarily nationalizing the utility, which a top Japanese official denied.

"TEPCO is the ground zero of the problem," said Adrian Foster, head of financial markets research Asia-Pacific at Rabobank International in Hong Kong. "This is disproportionately a Japan issue."

A tepid session on Wall Street overnight reinforced investors' aversion to piling back into riskier assets. Data showed U.S. consumers increased spending in February but much of the gain went to cover rising food and energy costs, giving the economy only a modest lift. .N

EURO FINDS FOOTING

In currency markets, the euro stabilized after ECB chief Jean-Claude Trichet said inflation in the euro zone was "durably" above the central bank's target, reinforcing the view it will raise interest rates early next month. The move would boost the value of the single currency and returns on euro-denominated investments.

Still, the euro remained under pressure because of

the region's festering sovereign debt problems and uncertainties stemming from Sunday's loss of a key state election by Germany's ruling party.

A warning from hotel operator Marriott that hurt hotel and other consumer shares during the regular session was followed after the bell by oilfield services company Halliburton Co's (HAL.N) announcement that first-quarter earnings could be trimmed.

"A good quarter is baked in right now, but I think there are going to be a lot of surprises, the latest one from Halliburton," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

He said among the main issues facing the next quarter's earnings are geopolitical issues emanating from northern Africa and the Middle East, the aftermath of Japan's natural disasters and nuclear crisis, and rising input costs.

"If companies can't pass along the price increases, we're going to see some problems and that's where earnings are going to start to have an issue," Saluzzi said. "Unless they pass it on and then we have inflation ... so pick your poison."

Marriott International (MAR.N) shares fell 6.3 percent to $35.30 during the regular session, while Halliburton dropped 1.9 percent to $47 after the bell.

Stocks spent most of the day in positive territory, with the S&P 500 hitting a session high near 1,320 for a second straight session, driven by strength in the telecommunications sector and consumer spending data.

The Dow Jones industrial average .DJI lost 22.71 points, or 0.19 percent, to 12,197.88. The Standard & Poor's 500 Index .SPX fell 3.61 points, or 0.27 percent, to 1,310.19. The Nasdaq Composite Index .IXIC fell 12.38 points, or 0.45 percent, to 2,730.68.

Analysts at Instinet in New York said a battle over the territory just beyond the day's highs on the S&P 500 was likely to continue in the upcoming sessions.

"Over the very near term ... the odds point toward another short-term firefight in the 1,320-1,330 area," Instinet's note said.

The S&P telecom index .GSPL rose 1.4 percent after a brokerage upgraded a number of companies, including Dow components AT&T Inc (T.N) and Verizon Communications Inc (VZ.N).

AT&T rose 1.8 percent to $29.36 and Verizon gained 1.2 percent to $37.75, curbing losses in the blue-chip index.

About 5.9 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq -- the lowest volume in 2011. Last Tuesday's 6.54 billion was the lowest until Monday.

"From the point of view of a purchaser, to make a commitment here, you have to think margins will keep expanding and the Fed will stay easing," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

He said light volumes reflect investors' uncertainty on those issues.