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Goldman revealed for the first time how much it made from trading and investing on its own behalf, which many investors have suspected is a key source of the bank's profits, during the first three quarters of the year.

The bank also made structural changes to its divisions, but there was no major management shake-up, leaving in place Chief Executive Lloyd Blankfein.

Blankfein and his firm came under siege last April after U.S. securities regulators sued Goldman and bond trader Fabrice Tourre for selling repackaged mortgage bonds to investors without disclosing key information about the securities.

Tourre referred to himself as "fabulous Fab" and to a collateralized debt obligation product he helped create as "a little like Frankenstein turning against his own inventor." To many critics of Goldman, he embodied the firm's willingness to put its own interests ahead of clients.

Soon after the SEC lawsuit, Goldman commissioned a report to determine how it should change the way it does business.

The report, released on Tuesday, recommends creating at least three internal committees and focuses mainly on disclosure and oversight. It makes few recommendations for how Goldman will change the way it does business day to day and some observers questioned how much will change.

"I'm not terribly convinced it produces a new culture," said Cornelius Hurley, a professor and director of Boston University's Morin Center for Banking and Financial Law. "It seems to be part of their concerted public relations effort."

Still, Goldman did shed new light on the heretofore murky realm of proprietary trading profits, revealing that its investment and lending group -- which includes the bank's bets with its own money -- accounted for nearly 30 percent of pre-tax earnings in the first three quarters of 2010.

And Goldman's disclosure overhaul could boost pressure on rivals to follow suit, especially after the sweeping Dodd Frank financial reform bill shone a spotlight on the propensity of big Wall Street firms to make risky bets with their own capital.

"I think other banks will follow Goldman on this," said Brad Hintz, investment banking analyst at Sanford C. Bernstein in New York. "They may not want to admit it, but this kind of disclosure puts pressure on other boards to act."

The report came even as other major banks express eagerness to put the financial meltdown of 2008 behind them. Barclays Plc's new boss, Bob Diamond, said on Tuesday that banks should stop apologizing for the mistakes that helped cause the crisis.

The 63-page report prepared by a committee led by executive and former Federal Reserve Bank of New York president Gerald Corrigan and by Michael Evans, a vice chairman of the company, details 39 plans for how it will change after years of investor accusations its financial statements are opaque and client complaints about conflicts of interest.

Goldman agreed in July to pay $550 million to settle the SEC lawsuit. The SEC accused the bank of creating and selling collateralized debt obligations linked to subprime mortgages without telling investors hedge fund Paulson & Co helped choose and bet against the debt. The settlement was one of the biggest arising from the U.S. housing and credit crises.

As part of Goldman's settlement, the investment bank agreed to require two internal committees to review mortgage bond deals to make sure marketing materials describe necessary facts to investors.

The change at Bank of China announced in a posting dated December 2010 means that customers can trade in yuan in the United States for the first time rather than having to do so in Hong Kong.

The New York branch of China's fourth-largest bank said it now lets companies and individuals buy and sell the yuan via accounts with its U.S. branches, although U.S. businesses and individuals can also trade the currency through Western banks.

"The authorities are promoting the use of the yuan in international trade and this is another step in that direction and this means we should see the growth of yuan trading in other regional centers across the world," said Robert Minikin, senior currency strategist at Standard Chartered Bank in Hong Kong.

The move is seen as another small step to redenominate trade in yuan after persuading mainland importers and exporters to reduce settling trade in the U.S. dollar and striking trade settlement agreements with Russia, Brazil and other countries.

These efforts have paid off with the yuan deposit base expanding sharply since the July 2010 trade liberalization rules leading to the emergence of an offshore yuan and yuan-linked instrument market in Hong Kong.

SMALL STEPS

Yuan deposits in Hong Kong jumped to 280 billion yuan by the end of November from just 63 billion yuan at the end of 2009, and with the likelihood of more trade being settled in yuan in other centers, more pools of liquidity could mushroom.

In Singapore, HSBC has started offering yuan deposits to customers in Singapore with investible assets of more than 200,000 Singapore dollars and DBS will offer yuan deposits to customers soon.

"Every step has been a small step. It is with small steps to a more flexible currency, but at their pace and what they are comfortable with. It is also not a shock that the Chinese did this just when they are meeting with U.S. officials," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

While this would bolster trade settlement in yuan, it still has a long way to go before it assumes the status of an alternative reserve currency as Chinese policymakers ultimately control the yuan liquidity taps in offshore markets and investing in mainland assets is still strictly controlled.

The move comes before a scheduled visit to Washington by Chinese President Hu Jintao for a summit on January 19.

The bank's website, which outlines details of holding renminbi accounts, said the bank offers yuan savings, demand deposit and time deposit accounts to business customers in New York and Los Angeles.

A savings account requires a minimum balance of the equivalent of $5,000, while the minimum in demand deposit accounts is $3,000.

(Additional reporting by Julia Haviv in NEW YORK, Kevin Lim and Catherine Trevethan in SINGAPORE, Editing by Kevin Plumberg)

The U.S. Securities and Exchange Commission announced the settlement and filed a civil lawsuit charging two Schwab executives, Kimon Daifotis and Randall Merk, with violating securities fraud laws over how the Schwab YieldPlus fund was marketed.

Schwab, a discount brokerage and fund company, expects a $97 million fourth-quarter after-tax charge for its settlement, which it said resolves related proceedings by the Financial Industry Regulatory Authority and Illinois regulators.

The $118.9 million payment includes fines totaling $57.3 million and will be used for restitution to investors.

YieldPlus had about $13.5 billion of assets in more than 200,000 accounts in 2007, making it the largest "ultra-short" bond mutual fund at the time.

But it suffered a total return of negative 42 percent in 2008 and 2009 as the credit crisis caused riskier investments it held to lose value or become illiquid.

Redemptions fueled the decline, as assets fell to $1.8 billion from $13.5 billion in just eight months, the SEC said.

Tuesday's settlement follows approval last November 24 by U.S. District Judge William Alsup of a $235 million agreement by San Francisco-based Schwab to settle a lawsuit by investors who said they lost $970 million by investing in the fund.

The SEC settlement requires court approval. Its civil case against Daifotis and Merk seeks fines and other remedies.

STATEMENTS ALLEGEDLY MISLEADING

Many fund companies marketed ultra-short funds as a safe alternative to money market funds and other cash equivalents.

The SEC said Schwab marketed YieldPlus in this manner, but nonetheless put about half the fund's assets into private-issuer mortgage-backed securities, twice the maximum allowed, without getting required shareholder approval.

It accused Daifotis, a former chief investment officer for fixed income, in conference calls falsely said the fund was suffering "very, very, very slight" or "minimal" redemptions.

The SEC also said Merk, an executive vice president, approved statements suggesting the fund was structured to avoid large principal losses.

"All financial firms and professionals, including large mutual fund providers, must be vigilant in accurately describing the risks of the products they sell to the public, especially the widely-held mutual funds that are the bread-and-butter investments of retail investors," SEC enforcement chief Robert Khuzami said in a statement.

The other 10 regional Fed banks wanted no change in the discount rate. The U.S. central bank's board sided with them, keeping the discount rate steady at 0.75 percent in meetings ahead of its December 14 policy decision.

"Federal Reserve Bank directors noted positive developments that indicated the recovery was continuing, but given ongoing uncertainties, directors remained cautious about the outlook and expected growth to be modest going forward," the Federal Reserve Board said in the minutes.

The directors noted somewhat stronger-than-anticipated consumer spending and expanding manufacturing activity, but also pointed to continued weakness in housing prices and the weak labor market.

The Fed said regional bank directors commented that uncertainty over U.S. fiscal and regulatory policies, the fiscal condition of state and local governments and financial developments abroad were weighing on hiring and capital spending decisions. They generally expected inflation to remain quite low, despite recent rises in food and metals prices.

Against this backdrop, most directors recommended that the current accommodative stance of monetary policy be maintained."

Those in favor of raising the discount rate described it as a "another step toward restoring a pre-crisis discount rate structure" that would result in a 75-basis-point-spread between the discount rate and the upper end of the Federal Open Market Committee's target rate for the federal funds rate, the main policy tool.

"These directors favored a move toward normalization of the primary credit rate in light of the monetary stimulus already in place," the minutes said.

At its December 14 meeting, the FOMC reaffirmed its commitment to buy an additional $600 billion in longer-term U.S. Treasury debt by mid-2011, offering only a cautious nod to the economy's improving prospects. It offered no policy shift, saying the recovery was still not strong enough to bring down unemployment significantly.

(Reporting by David Lawder; Editing by Andrea Ricci)

Goldman, due to report quarterly earnings next week, for the first time will break out how much it earns from trading on its own behalf rather than for clients. Other changes will aim to avoid conflicts of interest and ensure that staff are trained to think about the firm's reputation in their day-to-day activities.

The investment bank released a 63-page report on Tuesday that details 39 plans for how it will change after years of investor accusations that its financial statements are opaque and client complaints about conflicts of interest.

The internal review was kicked off after Goldman was accused by U.S. securities regulators of creating and selling collateralized debt obligations linked to subprime mortgages without telling investors that hedge fund Paulson & Co had helped choose and bet against the debt.

Goldman agreed in July to pay $550 million to settle the lawsuit brought by the U.S. Securities and Exchange Commission, one of the biggest arising from the U.S. housing and credit crises.

The report also follows the passage of a sweeping financial regulatory reform bill last summer that, in part, sought to restrict big Wall Street firms' ability to make bets with their own capital.

'BLACK BOXES'

"Goldman is going down the road of trying to repair its image," said Alan Villalon, an analyst at Nuveen Asset Management, in Minneapolis. "This is a step in the right direction, but it's only a step. What investors really want to know now is, what is the true earnings power of this company going forward."

Goldman shares edged higher in morning trading, gaining 43 cents to $170.19. The shares have gradually recovered from a steep drop that followed the disclosure of the SEC suit last April, rising about 6 percent.

Goldman said it would start reporting more details about whether trading revenue comes from facilitating client transactions or from investing on its own behalf. The change comes in response to widespread criticism that the bank does not adequately disclose how it makes money.

"People have been asking for more information from Goldman for a long time. Black boxes are terrific when earnings are going up, but once things turn sour, investors get aggravated that they can't find out more," said Marshall Front, chairman at Front Barnett Associates in Chicago, which does not own Goldman shares.

Goldman Sachs earned a record $13.39 billion in 2009. The bank's results have been on a roller-coaster ride over the last five years, rising to an eye-popping $11.6 billion in 2007 before dropping to $2.32 billion in 2008, only to reach a record high the following year.

BLANKFEIN UNSCATHED

Goldman's 2010 results are on track to be down from 2009; the bank earned just $5.49 billion in the first nine months of the year. The bank is scheduled to report fourth-quarter results on January 19 under its new disclosure framework.

Goldman said it would set up a new committee to ensure that clients are being treated fairly.

Alcoa Inc (AA.N), the first Dow component to report, posted a quarterly profit late Monday that topped expectations, though revenue missed estimates. Alcoa also forecast a 12 percent rise in demand this year.

"Alcoa's demand outlook was very optimistic, and the fact that it beat on the bottom line sets the stage for other companies to beat," said Cort Gwon, director of trading strategies and research at FBN Securities in New York.

Alcoa's shares dipped 0.7 percent to $16.37 in premarket trading but have gained 25.5 percent since the start of December. Stocks have rallied in recent weeks in part on hopes of a strong earnings season.

European shares rose 1 percent as reassuring comments from Portugal's prime minister eased worries about the country's debt level. U.S. and European stocks were pressured on Monday on concerns the country would need a bailout.

"The comments out of Portugal suggest they won't ask the EU for any aid, at least not right now," Gwon said. "That's reassuring, and it will allow the market to focus on U.S. earnings instead of sovereign debt."

S&P 500 futures rose 5.5 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 47 points, and Nasdaq 100 futures rose 12.25 points.

The S&P has found technical support near its 14-day moving average, which is around 1,264. The index closed at 1,269.75 on Monday.

Supermarket chain Supervalu Inc (SVU.N) is set to report results on Tuesday, and bellwethers Intel Corp (INTC.O) and JPMorgan Chase & Co (JPM.N) will report later in the week.

Both Sears Holding Corp (SHLD.O) and Tiffany & Co (TIF.N) raised their earnings outlooks, citing strong sales.

Chevron Corp (CVX.N), the second-largest U.S. oil company, was set to give an early look at its fourth-quarter production numbers, along with an indication of its quarterly results.

U.S. wholesale inventories for November will be reported at 10 a.m. (1500 GMT) on an otherwise light day for economic data. Inventories were expected to gain 1.0 percent after a 1.9 percent rise in October. Estimates for November ranged from 0.5-2.0 percent in a Reuters poll.

On Monday, U.S. stocks recovered most of their early losses in light volume to end slightly lower as prospects for strong earnings helped counter worries about Portugal.

(Editing by Padraic Cassidy)

The Miami-based builder, which has operations in 14 states, reported earnings of $32 million, or 17 cents a share, for the quarter ended November 30, compared with $35.6 million, or 19 cents per share, a year ago.

Lennar's quarter last year included a $320.5 million tax benefit, the company said.

Analysts on average predicted fiscal fourth-quarter earnings of 3 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 6 percent to $860.1 million.

New orders fell 5 percent to 2,520 homes. Last Friday competitor KB Home (KBH.N) reported a 25 percent dip in orders, in line with the industry average.

The company's Rialto segment, which invests in distressed land, contributed $12.4 million in operating earnings.

Gross margins were 17.7 percent compared with 11.1 percent last year.

The company's shares, which gained 26 percent in the last three months, closed at $18.90 on the New York Stock Exchange on Monday.

(Reporting by Bijoy Koyitty in Bangalore and Helen Chernikoff in New York. Editing by Vinu Pilakkott and Robert MacMillan)

Philadelphia Federal Reserve Bank President Charles Plosser said the $600-billion quantitative easing plan, known as QE2, would need to be reconsidered if the U.S. economy's current "moderate recovery" picks up steam.

The prospect of sustained price deflation -- a worry for Fed Chairman Ben Bernanke and other backers of the controversial QE2 plan -- is highly unlikely in part because the Fed's massive reserves will eventually flow out into the economy, Plosser added.

"If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance," Plosser said in prepared remarks.

"The aggressiveness of our accommodative policy may soon backfire on us if we don't begin to gradually reverse course," he said.

"On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to take that into account as we adjust our policy stance."

Plosser's wide-ranging speech to the Risk Management Association was his first public comments in a year in which he rotates into a voting slot on the Fed's policy-setting panel.

It comes as recent data show the U.S. economy is slowly recovering, but also as Fed officials increasingly rally behind QE2, which in early November set the Fed to purchasing Treasury securities in an effort to rejuvenate that recovery.

QE2, the second round of such easing, takes the Fed deeper into unchartered policy in an effort to fend off the threat of deflation and to lower unemployment, which dropped to a still-high 9.4 percent in December.

The central bank has kept interest rates near zero for more than two years to combat the worst recession in decades.

Critics, including many economists and Republican members of Congress who want the bond-buying curbed, say it lays the groundwork for a spike in inflation, and for troublesome asset bubbles.

"While inflation is currently lower than the 1.5 to 2.0 percent level many monetary policymakers would prefer, it does not follow that sustained deflation is imminent or even likely," Plosser said, adding he expects "inflation will be subdued in the near term."

Inflation should accelerate toward 1.5 to 2.0 percent over the next two years, Plosser forecast. He also predicted a reading of 2.5 to 3.0 percent GDP growth in 2010, and 3.0 to 3.5 percent GDP growth annually in 2011 and 2012.

Plosser said he expects the unemployment number to "bounce around in the near term" before gradually recovering. Even though the U.S. jobless rate dropped last month, the economy that month generated only a disappointing 103,000 jobs, and data showed a troubling rise in the number of those exiting the workforce.

Yet reports on U.S. consumer spending, manufacturing, and trade have in recent months suggested the world's biggest economy is healing, setting a nuanced stage for the Fed's next policy-setting meeting January 25 to 26.

Plosser last had a vote on the policy-setting Federal Open Market Committee (FOMC) in 2008. He and Dallas Fed President Richard Fisher, who also is a voting member this year, are seen as most likely to vote against the majority -- though Fisher said in an article published Monday that QE2 would likely run its course.

"Unanimity is not the natural state of affairs in life -- nor is it inside the halls of the Federal Reserve," Plosser said Tuesday.

(Reporting by Jonathan Spicer, Editing by Chizu Nomiyama)