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The common currency, last at $1.3330, raced to a high of $1.3383 on Thursday after the European Central Bank caught markets off guard by hinting it could lift interest rates to contain inflation, even while the bloc was tackling a debt crisis.

The hawkish comments followed interest rate hikes in Thailand and South Korea this week as policymakers grow increasingly worried about inflationary pressure.

"The signals from the ECB also reinforce our view that it will hike before the Fed does," said Ken Wattret, BNP Paribas chief eurogroup market economist.

"As relatively little in the way of rate hikes has been priced in for this year, the market is likely to continue to shift in the direction of early tightening, absent a resurgence in market volatility."

The euro's rise marked an impressive turnaround from a four-month low around $1.2871 on Monday and set the scene for a retest of the December high of $1.3500. It is up about 3.5 percent this week, the biggest weekly rise since May 2009.

Well-received bond sales from highly indebted euro zone members Portugal and Spain this week and speculation that European policymakers will boost their war chest against attacks on euro zone sovereign debt all contributed to the currency's better tone.

Gains in the euro saw the dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, retreat to below 80.000 from this week's high of 81.313.

But Tsutomu Soma, manager of foreign securities at Okasan Securities, said the euro's rise was nothing more than short-covering from overselling late last year on excessively bearish view on the euro zone.

"Given that the fiscal problems in the region are unresolved, investors will be cautious about chasing the currency higher."

STOCKS SUBDUED

Meanwhile, Asian shares were generally softer as investors took profits on recent sharp gains and as a pullback in oil and metals prices hit stocks of resource companies.

Japan's Nikkei average .N225 slipped 0.3 percent, a day after hitting an eight-month high, while stocks elsewhere in Asia .MIAPJ0000PUS edged down 0.1 percent.

South Korea's KOSPI .KS11 was flat, Australia's S&P/ASX 200 index .AXJO lost 0.2 percent and Hong Kong's Hang Seng index .HSI was 0.1 percent lower.

POSCO (005490.KS) fell more than 1 percent after the world's No.3 steelmaker disappointed investors with its fourth quarter earnings and warned it was struggling to pass on higher costs of raw materials.

Shares in the world's largest chipmaker, whose net profit surged 48 percent year on year, gained 2.4 percent, driven by hopes for strong sales of its Sandy Bridge microprocessors, its newest and most advanced line.

"The expectation was there might be a miss. There is a lot of concern over smartphones and tablets, but that will take a backseat in the meantime," said Mahesh Sanganeria, an analyst at RBC Capital Markets.

Despite an apparent early success with Sandy Bridge, Intel faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

Intel's processors are the brains in 80 percent of the world's PCs but the company has yet to make its mark in mobile gadgets that people increasingly depend on to surf the Web and update their social networking profiles.

"Right now there's just a larger overhang over the stock when it comes to tablets and smartphones. That may be an area where investors are more cautious," said Patrick Wang, an analyst at Wedbush Securities.

But for the shorter term, many investors are betting on a bump in revenue growth from the chip giant's newest product line, considered one of its most important advances in computer processing power. Intel unveiled its Sandy Bridge microchip last week.

"It seems to be getting widespread acceptance from the customers. Even with the consumer market being a little bit weak we expect it to ramp sales nicely in Q1," Chief Financial Officer Stacy Smith told Reuters.

BY THE NUMBERS

Shares of Applied Materials, KLA Tencor, Novellus and other producers of chipmaking equipment rallied between 4 and 6 percent after Intel executives said they were almost doubling capital spending in 2011 to $9 billion, plus or minus $300 million.

Intel is building a new fabrication plant in Oregon and upgrading several existing factories to manufacture its next-generation 22-nanometer microprocessors.

Intel stock rose 2.4 percent in after-hours trading, after closing down 0.06 percent at $21.81 on Nasdaq.

Intel posted an 8 percent increase in fourth-quarter revenue and forecast revenue of $11.1 billion to $11.9 billion in the first three months of 2011.

The fourth-quarter revenue slightly exceeded the $11.37 billion expected by analysts, according to Thomson Reuters I/B/E/S. Analysts, on average, had expected revenue of $10.73 billion in the first three months of 2011.

Intel had a record gross margin of 67.5 percent in the fourth quarter, compared to 66.7 percent expected by analysts.

Shares in the world's largest chipmaker gained 2.7 percent after its forecast for first-quarter revenue and gross margin surpassed expectations, driven by hopes for strong sales of its cutting-edge Sandy Bridge microprocessors.

"The expectation was there might be a miss. There is a lot of concern over smartphones and tablets, but that will take a backseat in the meantime," said Mahesh Sanganeria, an analyst at RBC Capital Markets.

Despite an apparent early success with Sandy Bridge, Intel faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

Intel's processors are the brains in 80 percent of the world's PCs but the company has yet to make its mark in mobile gadgets that people increasingly depend on to surf the Web and update their social networking profiles.

"Right now there's just a larger overhang over the stock when it comes to tablets and smartphones. That may be an area where investors are more cautious," said Patrick Wang, an analyst at Wedbush Securities.

But for the shorter term, many investors are betting on a bump in revenue growth from the chip giant's newest product line, considered one of the most important advances in computer processing power. Intel unveiled its Sandy Bridge microchip last week.

"It seems to be getting widespread acceptance from the customers. Even with the consumer market being a little bit weak we expect it to ramp sales nicely in Q1," Chief Financial Officer Stacy Smith told Reuters.

BY THE NUMBERS

Intel posted an 8 percent increase in fourth-quarter revenue and forecast revenue of $11.1 billion to $11.9 billion in the first three months of 2011.

The fourth-quarter revenue slightly exceeded the $11.37 billion expected by analysts, according to Thomson Reuters I/B/E/S. Analysts, on average, had expected revenue of $10.73 billion in the first three months of 2011.

Intel had a record gross margin of 67.5 percent in the fourth quarter, compared to 66.7 percent expected by analysts.

It forecast a gross margin of 64 percent in the current quarter, plus or minus two percentage points. Analysts had forecast a first-quarter gross margin of 63.5 percent.

Intel said net income totaled $3.4 billion, or 59 cents a share, in the fourth quarter, compared with 53 cents per share expected by analysts.

Major technology companies are expected to keep up sales and profit growth in 2011, but economic troubles in the United States and Europe could temper their results.

Shares of Intel rose 2.7 percent in after-hours trading, after closing down 0.06 percent at $21.29 on Nasdaq.

(Additional reporting by Alexei Oreskovic, Liana B. Baker, Yinka Adegoke and Caroline Valetkevitch; Editing by Edwin Chan and Richard Chang)

JPMorgan Chief Executive Jamie Dimon was among the executives attending the meeting. Dimon entered the building of law firm Davis Polk & Wardwell LLP just after 9:30 a.m. EST (1430 GMT) in New York. Asked how the meeting went as he left, Dimon laughed and said: "How'd what go?"

Morgan Stanley CEO James Gorman left the building shortly after Dimon's arrival. The bankers on Gorman's team were carrying thick blue folders adorned with the U.S. flag. One of Gorman's colleagues carried a bag full of folders.

Gorman also declined to comment.

Bank of America Corp's Brian Moynihan also came to the so-called "bakeoff," arriving just before 11 a.m. EST.

Security was tight, with guards keeping a close eye on all of the building's entrances and trying to block reporters and passers-by from seeing executives as they came and went.

Bankers are expected to come and go throughout the day to make their case for managing a share sale that could exceed $20 billion, between the shares sold by the U.S. Treasury and those offered directly by AIG.

After a recapitalization deal closes on Friday, the Treasury will own 92.1 percent of AIG. The government rescued AIG from the brink of failure in September 2008 in a bailout that topped $182 billion.

Sources told Reuters on Wednesday that bankers were expected to pitch a fee structure of 75 basis points or less -- low for a secondary offering, but still worth perhaps $150 million in fees to the winning banks if the share sale reaches $20 billion.

Sources have said the first share sale is most likely to take place after mid-May, once AIG has filed its quarterly report for the first quarter with securities regulators. There is the possibility, however, that the sale could happen as soon as March if conditions were right.

AIG shares were trading 34 cents higher at $58.74 on Thursday morning on the New York Stock Exchange.

The shares are expected to drop sharply next week, into the mid-$40 range, when recently approved stock warrants begin trading. The warrants, entitling holders to 75 million AIG common shares, were the final key step in the recap deal.

(Reporting by Ben Berkowitz. Editing by Robert MacMillan and Matthew Lewis)

The number of Americans filing for first-time unemployment benefits rose to 445,000 from an upwardly revised reading of 410,000 in the prior week, the Labor Department said on Thursday. It was the biggest one-week jump in about six months, confounding analyst forecasts for a small drop to 405,000.

A Labor Department official noted the rebound occurred following the holidays, which may have hindered reporting of new claims and created a backlog.

Continuing claims retreated sharply to 3.88 million from 4.13 million, a potentially encouraging sign. However, the total number of Americans on benefit rolls, including extended benefits under emergency government programs, jumped to 9.19 million from 8.77 million.

The four-week moving average of new claims, which strips out short-term volatility in the data, rose by 5,500 to 416,500.

The U.S. economy has been expanding since the summer of 2009, but the pace of growth has not been sufficient to put a significant dent in the unemployment rate, which remains at an elevated 9.4 percent.

The move, which will take effect beginning June 30, 2011, will create the fifth-largest U.S. refiner and revives a plan the company had shelved in December 2008 when the financial crisis hit commodity markets.

"The substantial improvement in the global business and financial environments over the last two years has created the conditions under which we believe it is now appropriate to move forward with the formation of two strong independent energy companies." Clarence P. Cazalot, Jr, Marathon president and CEO, said in a statement.

Earlier this week, analysts at Deutsche Bank said the company should split because Marathon's refining arm was outperforming its exploration arm, and that its newly expanded Garyville, Louisiana, refinery was one of the lowest cost plants in the country.

The company's six refineries are located in the mid-continent and Southeast U.S. markets and have 1,142,000 barrels per day (bpd) of crude oil refining capacity,

But another analyst was skeptical of the move.

"I'm not convinced it creates value. We've been through this a couple times with this name, haven't we? Making a decision like this in response to short-term market trends, in my view, is just not appropriate," said Mark Gilman, analyst at The Benchmark Co.

Shares of the company rose 10.5 percent to $44.81 in premarket trading.

(Additional reporting by Ernest Scheyder, editing by Maureen Bavdek, Dave Zimmerman)

* Intel Corp (INTC.O) is to report quarterly results on Thursday while economic data includes weekly jobless claims, December producer prices and the November international trade number.

* Global personal computer shipments crept up only slightly in the fourth quarter, a pair of industry trackers said on Wednesday, hurt by weak consumer holiday demand and competition from Apple's (AAPL.O) iPad tablet.

* U.S. domestic-focused equity funds had estimated redemptions of $4.229 billion in the week ended January 5, the biggest net outflow of cash in three months, data from the Investment Company Institute showed on Wednesday.

* Oil extended gains on Thursday to hold under $92 a barrel, buoyed by signs of higher demand after U.S. crude stockpiles fell more than expected and a cold snap swept through the U.S. Northeast, the region's largest heating oil market.

* Soft commodities were also in the spotlight, whith Chicago corn up 1 percent while soybeans extended gains, with both markets climbing to their highest in almost 2-1/2 years, propelled by a surprisingly steep reduction in global supply of grains and oilseeds forecast by the U.S. government.

* European stocks were down 0.4 percent in morning trade following a brisk two-day rally as investors awaited key bond auctions from Spain and Italy, as well as interest rate decisions and comments from both the Bank of England and the European Central Bank.

* U.S. stocks ended solidly higher on Wednesday after European debt fears eased and sparked a broad advance, led by banks and commodity-related shares.

* The Dow Jones industrial average .DJI was up 83.48 points, or 0.72 percent, at 11,755.36. The Standard & Poor's 500 Index .SPX was up 11.47 points, or 0.90 percent, at 1,285.95. The Nasdaq Composite Index .IXIC was up 20.50 points, or 0.75 percent, at 2,737.33.

(Reporting by Blaise Robinson; Editing by Mike Nesbit)

The deal most clearly illustrated a broader finding of the bipartisan Congressional Oversight Panel: that the Obama administration may be too enamored of the politically appealing scenario of quickly cutting its stake in the auto business rather than patiently managing taxpayer interests.

"Treasury's efforts have in some cases lacked transparency and accountability," said former Delaware Senator Ted Kaufman, who headed the group's last report on the auto sector.

Kaufman stressed his group understood the administration faced tough decisions in orchestrating their overhaul and bankruptcy. Despite the criticism, the panel said in the report that the government's intervention was ambitious and the companies now "appear to be on a promising course."

However, he said taxpayers will likely lose billions on now-public GM, and Treasury may have "left money on the table" in its dealings with private equity firm Cerberus Capital Management over Chrysler Financial, the automaker's one-time consumer financing arm.

Treasury has recovered about half of the $50 billion extended to GM in return for nearly 61 percent of the restructured company, and about $2.2 billion of the $12 billion given to Chrysler in exchange for a 10 percent interest.

Treasury assumed 40 percent of Chrysler Financial's equity as part of a $3.5 billion pre-bankruptcy loan in January 2009 to the lending unit's parent, Chrysler Holding, which was owned at the time by Cerberus.

Treasury settled for $1.9 billion -- a loss of $1.6 billion on the loan -- in May 2010, transferring the stake to Cerberus, which became the sole owner.

Cerberus then agreed to sell the financing business for $6.3 billion to Toronto Dominion Bank (TD.TO) in December, raising eyebrows over Treasury's handling of the settlement.

The panel found that Treasury officials apparently conducted "limited valuation due diligence, focusing on the merits of the offer from Cerberus," the report said.

Treasury, the panel said, expected that Chrysler Financial would be wound down, which would limit its value, and noted at the time of settlement the price paid by Cerberus was fair.

Chrysler Financial, however, continued to make investments in its business before finding a strategic partner in TD Bank.

Treasury disputed the conclusion it may not have fully vetted the Chrysler Financial settlement, saying it conducted several months of due diligence and hired an independent financial adviser to assist in valuation and check for other potential buyers.

The panel was appointed by Congress to review bailouts under the Troubled Asset Relief Program. General Motors Co (GM.N) and Chrysler, now under management control of Italy's Fiat Spa (FIA.MI), received bailout and bankruptcy assistance from the Treasury in 2009.

Ron Bloom, the administration's pointman on auto restructuring, said in Detroit this week that the bailouts prevented widespread economic hardship.

Promises from China and Japan to support Europe through its fiscal crisis have also helped to keep the euro around $1.31 and the closeout of small bets against the euro could push it up above $1.32 in the near term, particularly as global equity markets hit two-year highs.

The euro zone's financing troubles have generally dragged on investors' appetite for risk taking, though signs that highly indebted European countries are able to tap capital markets albeit at high borrowing costs, may put risk seeking back in play.

Japan's Nikkei share average .N225 rose 0.7 percent to an eight-month high, with stocks of large exporters among the biggest boosts to the index.

"The strong bond auction in Portugal has calmed the markets and with no major negative factors in sight, foreign funds continue buying lagging banking and property shares," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, in Tokyo.

Japanese bank stocks outperformed for a second day as foreign investors kept loading up on previously underweighted financials. Shares of Mitsubishi UFJ Financial Group (8306.T), Japan's biggest bank by assets, gained 1.3 percent.

HSBC Holdings (0005.HK)(HSBA.L) was in focus on Thursday after its London-listed shares climbed 3.8 percent overnight, the biggest single-day gain since August 2010.

The Hong Kong-listed shares of the company were up 1.2 percent and have risen 8.5 percent so far in January on heavy trading volumes, as investors bet the bank would catch up with the share price gains of rival Standard Chartered Plc (2888.HK).

The MSCI index of Asia Pacific shares outside Japan was up 0.6 percent .MIAPJ0000PUS, within striking distance of a 2-1/2-year high that has been tested twice in the past two months.

The materials and financial sectors led gains in the MSCI index.

The MSCI all-country world index edged up to the highest since September 2, 2008 .MIWD00000PUS, having risen 20 percent since September 2010, when investors began to factor in the impact of further monetary easing by the Federal Reserve.

EURO BOUNCE ONLY TEMPORARY?

The euro was holding at $1.3100, down 0.2 percent on the day but up around 1.8 percent so far on the week.

Traders may take a shot at the low from January 3 at $1.3248 in the next few sessions, though that probably depends on how well Spain's 3 billion euro two-year bond auction and Italy's combined 7 billion euro debt auctions go.

"We can't help feeling that the bounce in sentiment will prove temporary and whilst it may continue over the short-term with attendant upside risks for the euro, it is unlikely to last for long unless concrete measures are unveiled by the authorities in Europe," Mitul Kotecha, global head of foreign exchange strategy with Credit Agricole CIB in Hong Kong, said in a note.