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Wall Street analysts expect top U.S. chains to report that sales at stores open at least a year, or same-store sales, rose 3.3 percent in December.

That would come on top of a 2.9 percent jump a year earlier, when the economic recovery started taking hold, but slower than the 6 percent increase reported for November.

Shoppers turned out in greater numbers this year, buoyed in part by pent-up demand after two seasons of frugality and a general sense that the economy is finally improving.

Still, Wall Street is fretting that shoppers will put their wallets away for a while, now that Christmas is over.

"People have tended to shop during the times they need to, like holidays or back to school," said Nomura analyst Paul Lejuez. "During off periods, they haven't been coming out."

Deeming the holidays a success will hinge on whether department stores, teen apparel chains and others were able to lure shoppers without going overboard with promotions.

"A good December might not mean a great January, February, March," Lejuez said.

Chains such as Target Corp, TJX Cos Inc, J.C. Penney Co Inc and Abercrombie & Fitch Co will report sales numbers on Wednesday and Thursday.

Analysts are watching this week's reports for changes to sales and profit forecasts. They want to know whether the December sales gains were "bought" with profit-eroding price slashing, in which case retailers might hold off on raising their own profit forecasts even if sales are up.

So far, though, most analysts say the season's discounting was not out of line.

Last week's massive blizzard that dumped as much as three feet of snow on parts of the U.S. Northeast likely put a small dent in December sales. Research firm ShopperTrak has estimated that $1 billion in retail sales may have been postponed due to the storm. International Council of Shopping Centers chief economist Michael Niemira told Reuters the snowstorm could lower the December sales growth rate by 0.5 percentage point, though some purchases may show up in January.

February's Valentine's Day is important for specialty retailers such as jeweler Tiffany & Co, but retailers have to wait until Easter, in late April, for the next major shopping occasion.

The spending recovery helped the S&P Retail Index rise 23.4 percent in 2010, compared to the broader S&P 500's increase of 11.7 percent. However, the index has stalled since early December on fears the rally has run out of steam.

(For a graphic comparing same-store sales and the S&P Retail Index please see: r.reuters.com/teb54r )

Japanese shares hit a 7- month high on Tokyo's first trading session of the New Year, a day after the United States reported manufacturing grew at its fastest clip in seven months in December. U.S. stocks hit new two-year highs overnight. .N

The next big test for the U.S. economy comes later this week when the government will publish its December jobs report.

"Market players are now focusing on the U.S. payrolls data due on Friday, which will likely have an impact on both Wall Street shares and the dollar/yen rate," said Kazuhiro Takahashi, general manager at Daiwa Capital Markets in Tokyo.

The Nikkei .N225 rose 1.7 percent, led by shares in resource companies as oil and commodity prices rose on the stronger economic growth outlook this year.

Stocks are also getting a boost from the "January effect" when fund managers are no longer distracted by year-end window dressing and instead focus on stocks they find attractive, traders said.

The MSCI index of shares excluding Japan .MIAPJ0000PUS was 0.21 percent higher, led by advances in the South Korean KOSPI .KS11 and the Shanghai Composite Index .SSEC, where property stocks jumped 5 percent as worries about further monetary tightening eased after surveys indicated that Chinese factory inflation may be abating.

Accelerating inflation and record house prices have led China's central bank to signal time and again in recent months that the country needs "prudent" monetary policy to curb price pressures and prevent asset bubbles.

But a fall in the official purchasing managers' index in December over the previous month held out hope that inflation, running at its highest in over two years, may be peaking soon.

Still, investor Jim Rogers said inflation remained a top concern for Chinese policymakers.

"But I think they'll be more tightening in China because the Chinese do have a serious inflation problem as you mentioned they know what I know and everybody knows it. And they're determined to kill it," he told Reuters Insider TV.

While the mood was upbeat across much of Asia, shares in Australia slipped into negative territory and both the Australian and New Zealand dollars were under pressure because of worries over the impact of floods in northeast Australia.

Heavy flooding in Queensland has cut coal exports and hurt wheat production. Miners such as Rio Tinto (RIO.AX) have declared force majeure and cut coal exports to a trickle.

"The lights were flashing a very verdant green at the start of the session but now it has fizzled. I suspect it will come back a bit later," said Michael Heffernan, strategist at Austock Group.

"The floods are likely to have some impact on coal stocks."

DOLLAR GAINS, TREASURIES DECLINE

Prosecutors accuse Winifred Jiau of selling inside information about publicly traded companies, including computer chipmakers Marvell Technology Group Ltd and Nvidia Corp to hedge funds, including the founder of a New York fund that prosecutors did not identify.

Federal prosecutors in New York are also involved in talks that could lead to a possible "disposition" of charges filed against a former executive with expert network firm Primary Global Research.

In a court filing last week, prosecutors disclosed that, as recently as December 22, they had "negotiations" with the lawyer for Don Chu, a Primary Global executive, who was arrested November 24 at his New Jersey home.

The prosecutors cited the ongoing negotiations as a reason for requesting additional time to decide whether or not to indict Chu, who was the first person arrested in this new round of expert network cases.

A federal judge has given federal authorities until January 27 to decide whether or not indict Chu.

Prosecutors allege Jiau sold information through an expert network firm, in exchange for more than $200,000 of payments funneled through that firm.

Primary Global has said it used Jiau from September 2006 until December 2008. The period roughly corresponds with the time frame in which prosecutors said Jiau's alleged illegal activity took place.

Jiau also worked for a different research firm, Vista, before Primary Global, her lawyer Mark Goldrosen said outside court on Monday.

Another figure caught up in the widening insider trading probe, Daniel DeVore, also did work for both Primary Global and Vista, according to court papers.

DeVore, a former Dell Computer employee, has pleaded guilty and is cooperating with the government.

A representative for Guidepoint Global, which acquired Vista in 2009, could not immediately be reached.

Last week a different magistrate granted Jiau $250,000 bail, but she was held in a California jail over the weekend because the person who initially agreed to co-sign the bond pulled out.

Jiau reappeared in court on Monday wearing a yellow prison jump suit and glasses. Assistant U.S. Attorney Wilson Leung argued against releasing her, saying she began pulling out of her driveway as federal agents pounded on her door.

But Goldrosen said Jiau, 43, was on her way to run errands and had not heard the agents. Once she saw them, she fully cooperated, Goldrosen said.

Bank of America shares climbed 3.5 percent in premarket trading Monday. Investors have been worried that the bank, like other large mortgage lenders, will have to buy back billions of dollars of home loans it sold to investors.

Mortgage bond investors say the home loans should never have been sold to them in the first place because they did not meet investors' underwriting requirements.

Bank of America said it made a $1.28 billion cash payment to Freddie Mac as part of an agreement to end all claims through 2008 related to mortgages sold by Countrywide, a mortgage company bought by the bank in 2008.

The bank paid Fannie Mae $1.34 billion in cash and applied certain credits to reach an agreed $1.52 billion settlement on 12,045 Countrywide loans.

Bank of America said it would put aside $3 billion in the fourth quarter related to the Fannie and Freddie claims and expects to record a goodwill impairment charge of $2 billion in the quarter in its home loans and insurance business unit.

The bank said it believes the settlement has resolved its remaining exposure for home loans sold directly to Fannie and Freddie.

Fannie Mae said in a statement that the agreement with Bank of America addresses about 44 percent of its $7.7 billion in outstanding repurchase requests at the end of September.

The agreement with Bank of America is similar to but much larger than a recent $462 million settlement between Ally Financial Inc and Fannie Mae.

Charlotte, North Carolina-based Bank of America is still working through claims related to mortgages sold to private investors.

The bank started negotiating with a group of mortgage investors last month in an apparent shift in its stance toward such claims. Previously, the bank vowed to fight these investors.

In October, Bank of America Chief Executive Brian Moynihan said the bank would fight back against investors whose attitude was: "I bought a Chevy Vega but I want it to be a Mercedes."

As the largest mortgage servicer in the United States, Bank of America has been at the center of the multi-year foreclosure crisis.

In 2008, it bought Countrywide for $4 billion, a move that has since plagued the bank's balance sheet with billions in problem mortgages.

In October, the bank briefly halted foreclosures amid industrywide allegations that lenders had cut corners on documentation in home repossessions.

The bank has since partially restarted foreclosure proceedings in 23 U.S. states.

(Reporting by Elinor Comlay in New York and Joe Rauch in Charlotte; Editing by Derek Caney and John Wallace)

U.S. stocks ended the year with double-digit gains, with the S&P 500 .SPX recording its best December since 1991.

The gains marked a recovery to the market's levels before the collapse of Lehman Brothers in September 2008. For the year the S&P rose 12.8 percent, the Dow Jones industrial average .DJI climbed 11 percent and the Nasdaq .IXIC surged 16.9 percent.

Sentiment improved after data showed China's factory inflation cooled in December as manufacturers expanded more slowly after a strong run in growth, lessening the need for the country's central bank to tighten monetary policy too far.

Later in the session, investors are likely to focus on the Institute of Supply Management's manufacturing survey, due at 1500 GMT (10 a.m. ET), for fresh clues on the health of the economy.

Economists polled by Reuters expect the ISM's high-profile measure of U.S. factory activity to edge higher to 56.9 from 56.6, reinforcing the view that the economy was mending gradually.

On the economic front, a fight over the U.S. budget loomed on Sunday as a top aide to President Barack Obama warned of catastrophic consequences if Republicans follow through on threats to reject an increase in the nation's borrowing limit.

Foreign investors overwhelmingly ranked the U.S. commercial real estate market as their No. 1 choice for investment this year and viewed it as the best opportunity for price appreciation, according to a survey of foreign real estate investors.

U.S. private employers have recorded 11 consecutive months of job gains, yet the number of people who are so discouraged that they have given up searching for work stands at an all-time high.

In company news, some iPhone users in Asia complained of malfunctioning alarms on the first working day of 2011, even after Apple (AAPL.O) reassured users that its phones' built-in clocks will work from Monday.

Google Inc (GOOG.O) has approached several magazine publishers about creating a digital newsstand, in a move that could open a new front in the Internet company's rivalry with Apple Inc, according to a news report.

Intel Corp's (INTC.O) new microchips, touted as its biggest-ever leap in processing power, include built-in content protection to make it safer for Hollywood studios to offer premium movies to consumers over their personal computers.

The popular Internet telephone service Skype could be dealt a major setback in one of the world's largest markets as the Chinese government cracks down on what it called illegal Internet telephone providers.

Shares in American International Group (AIG) (AIG.N) could drop this year as the U.S. government sells stock it owns in the insurer, Barron's reported on Sunday.

The business weekly also reported that Wall Street strategists are bullish about the market's prospects in 2011, expecting stocks to rise an average of 10 percent, with big-cap shares like Exxon Mobil Corp (XOM.N), Wal-Mart Stores Inc (WMT.N) and Pfizer Inc (PFE.N) leading the way.

A team of up to 20 Bank of America Corp (BAC.N) officials, led by the chief risk officer, Bruce Thompson, have been reviewing thousands of documents amid a threat that it may be a target of WikiLeaks, The New York Times reported on Sunday.

Bloggers, Facebook and Twitter users complained they missed flights or were late to arrive at work, as the alarm built into Apple's iPhone failed to go off for a third straight day for some users.

"My iPhone alarm didn't work again," user sueannlove from Singapore tweeted on the social networking site. "Time to dig out (the) old school alarm clock."

Similar messages were sent by iPhone users in Britain, Netherlands and other European countries.

The problem was not limited only to the iPhone, with some owners of other Apple products, such as its iPod music players, also complaining of a similar problem with their alarms.

"Apple certainly needs to fix it as soon as possible, but I doubt this will impact sales or reflect negatively on Apple itself," said Gartner analyst Carolina Milanesi.

Apple was not immediately available for comment in Asia and Europe, but it said on January 2 that it was aware of the problem with non-recurring alarms and that the iPhone's alarm will begin functioning normally again on January 3.

Some users said their alarms worked properly on Jan 3.

"This is not a major issue for Apple, but it is sad that they have the same error on vital dates," said John Strand, founder and chief of Danish telecoms consultancy Strand Consult.

The iPhone alarm system failed to recognize changes in daylight savings time in 2010, causing some users to sleep in an hour longer, according to media reports.

The last time Apple was embroiled in publicity problems was in July last year after the launch of the iPhone 4, when reports about bad reception snowballed and forced the company to call a news conference to address the issue, dubbed "antennagate."

This had no visible impact on Apple's sales as the firm sold more than 14 million iPhones in July-September quarter, more than ever before, and is now the world's second largest smartphone manufacturer behind Nokia.

(Editing by Lincoln Feast and Louise Heavens)