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BP (BP.N), recovering from its Gulf of Mexico oil spill disaster, will swap 5 percent of its shares, valued at $7.8 billion, for 9.5 percent of Rosneft in an agreement that immediately raised concerns about U.S. economic security from an American lawmaker and criticism from environmentalists.

The deal covers huge areas of the South Kara Sea in the Arctic that BP said could contain billions of barrels of oil and gas and had been previously off limits to foreign companies.

The pact, which is expected to be completed in a few weeks, highlights a rebound in relations with Moscow both for BP and its Chief Executive Bob Dudley, who was forced to flee Russia in 2008 after heading BP's Russian joint venture, TNK-BP, which is half-owned by BP.

Dudley said the deal was the first significant cross-shareholding between a nationally owned oil company and an international oil company and called it "a new template for how business can be done in our industry."

Dudley had been the boss for TNK-BP's (TNBPI.RTS) formation in 2003 and was forced to leave due to what he described as a campaign of harassment by BP-TNK's billionaire oligarch co-owners.

The issue has since been resolved and Dudley returned to Moscow for the first time this summer, following his appointment as CEO of BP, to be warmly welcomed by officials.

"It has turned from a fistfight into a lovefest," said Cliff Kupchan, a director at Eurasia Group in Washington.

Russia is a key part of BP's global operation, providing the company with a quarter of its reserves before the U.S. oil spill, so it is vital for Dudley to establish a good working relationship with the world's largest oil exporting nation.

U.S. Congressman Edward Markey, who is the top Democrat on the House Natural Resources Committee, immediately called for a review of the deal by U.S. regulators to see whether it affects the national and economic security of the United States. He noted that in 2009 BP was the top petroleum supplier to the U.S. military.

The U.S. Treasury said it is forbidden by law to comment on investigations, planned or under way, by its Committee on Foreign Investment in the United States.

Environmental group Greenpeace, noting the fragility of the Arctic, also lashed out.

"Now BP has bought its way into the Arctic by the back door. It seems the company learned nothing last year in the Gulf of Mexico," Charlie Kronick of Greenpeace said in a statement.

BP has a market capitalization of $150 billion U.S. dollars, while Rosneft is valued at about $83 billion.

ARCTIC EXPLORATION

BP (BP.N), recovering from its Gulf of Mexico oil spill, said on Friday it will swap 5 percent of its shares, valued at $7.8 billion, for 9.5 percent of Rosneft.

The deal, which is expected to be completed in a few weeks, highlights a sharp turnaround in relations with Moscow both for BP and its Chief Executive Bob Dudley, who was forced to flee Russia in 2008 after heading BP's Russian joint venture, TNK-BP, which is half-owned by BP.

Dudley had been the boss for TNK-BP's (TNBPI.RTS) formation in 2003 and was forced to leave due to what he described as a campaign of harassment by BP-TNK's billionaire oligarch co-owners.

The issue has since been resolved and Dudley returned to Moscow for the first time this summer, following his appointment as CEO of BP, to be warmly welcomed by officials.

Tony Hayward, Dudley's predecessor who was vilified for his handling of BP's massive Gulf of Mexico spill in 2010, holds a seat on TNK-BP's board of directors.

Russia is a key part of BP's global operation, providing the company with a quarter of its reserves before the U.S. oil spill, so it is vital for Dudley to establish a good working relationship with the world's largest oil exporting nation.

Congressman Edward Markey, who is the top Democrat on the House Natural Resources Committee, immediately called for a review of the deal by U.S. regulators.

GLOBAL STAGE

Russia has increasingly been looking to raise its influence on the global financial stage, with major companies -- including state-controlled ones -- seeking foreign acquisitions.

Some deals have come under fierce opposition in the countries involved, such as Surgutneftegas's (SNGS.MM) purchase of a stake in Hungary's MOL (MOLB.BU). Others, like Sberbank's (SBER03.MM) bid for German carmaker Opel, collapsed.

Prime Minister Vladimir Putin's government has also pledged to ease investors' access into Russia as it looks to foreigners to play a key role in helping to modernize the economy -- including through taking part in a big privatization drive starting this year.

Britain's new coalition government has attempted to improve relations with Moscow -- tense since the murder of ex-KGB agent Alexander Litvinenko in 2006 -- although tensions resurfaced last month with the expulsion of a Russian diplomat from London.

U.S.-listed shares of BP, which had been trading higher, fell slightly to $48.87 in post-market trading. The stock had closed at $49.25 on the New York Stock Exchange.

(Additional reporting by Volodya Soldatkin, Toni Vorobyova and Darya Korsunskaya in Moscow and Kristen Hays and Chris Baltimore in Houston, writing by Anna Driver, editing by Gerald E. McCormick, Gary Hill)

Bankers were buzzing on Friday about how soon that might happen, with at least one saying he would not be surprised if the government picked the deal's managers next week and others saying the fee on the deal was already under pressure.

AIG Chief Executive Bob Benmosche, in an interview on Friday, said the company was hoping to pick the deal's managers as soon as was practical, though he gave no timeframe.

He also said work would begin immediately on preparing the investor roadshows to sell institutions on the restructured company. Benmosche plans to take part despite aggressive chemotherapy for cancer.

"I'm still feeling pretty good," he said.

The recapitalization was intended to simplify AIG's $182 billion bailout by paying off the Federal Reserve and leaving the U.S. Treasury as AIG's majority owner. The Treasury said on Friday its cash investment in AIG is now $68 billion.

"Treasury remains optimistic that taxpayers will get back every dollar of their investment in AIG," Treasury Secretary Timothy Geithner said in a statement. The government stands to make a profit in the tens of billions of dollars on its AIG shares, given their appreciation over the last year.

SALE IN MAY

A person familiar with the situation told Reuters on Monday a large Treasury-AIG share sale was likely after mid-May, and other sources have said in the past that Treasury likely would dispose of the stake by 2012.

The Treasury spent all day Thursday meeting bankers in New York to find the right group to manage the stock sales. The CEOs of some of the world's largest financial institutions appeared in person to make their case for what could be one of the 10 largest share offers ever.

Sources have said the banks' proposals would includes fees of no more than 75 basis points -- some $150 million for the winning banks on a $20 billion deal, but half the typical fee for a deal of this type and size.

Some bankers said on Friday they would not be surprised, given the competitive nature of the deal, if the fees went even lower -- although one banker pointedly noted he had no interest in doing the deal for free.

BUYING A MISSILE

The fee structure would be broadly in line with what the government paid banks last year to manage the initial public offering of automaker General Motors Co. Multiple people familiar with the situation said it did not make sense for the AIG fees to be higher than for GM.

"It's like buying a missile at $1 billion when the last time you paid half a billion," one person said.

Companies want the rate slashed, arguing that it handicaps them competitively against their foreign-based peers.

"The current tax code with its punitive corporate rates and complex maze of deductions and credits highly distorts economic decision-making," said Dean Garfield, president of the Information Technology Industry Council, whose members Cisco Systems and Microsoft Corp will attend the meeting.

Obama administration officials, for their part, say a corporate tax revamp must be "revenue neutral," so a rate cut will have to be offset by new revenue.

Administration officials point out that companies typically do not pay the full 35 percent rate, thanks to a myriad of deductions and credits that help them chip away at their rate.

Still, Geithner said earlier this week the high rate can influence incentives on where to invest.

"What we want to do is to make sure we are strengthening the relative incentives for investing in the U.S. versus shifting investment outside the United States," Geithner said on Thursday.

A big point of debate will revolve around what portion of profits is taxed.

WHERE INCOME IS EARNED

The United States is alone among its Group of Eight peers in collecting taxes on profits earned worldwide. Most other countries impose levies on domestically earned income only, under what is called a "territorial" system.

Companies get tax credits to avoid double taxation but executives say it does not fully offset the extra cost.

President Barack Obama's deficit commission recommended last month that the United States move to a territorial system. It also said many big corporate deductions and credits should be eliminated.

A move to a territorial system would primarily benefit big multinational companies -- leaving companies that derive more sales from the United States with fewer relative benefits. That could cause a rift in the business community.

In another wrinkle, a big chunk of businesses are not organized as traditional corporations at all. Taxes on these companies, many known as S-corps, flow through to individual shareholders who pay their individual income tax rate.

Thus leaving the top individual rate at 35 percent could cause another fissure among those executives who would not see a benefit in a corporate tax cut.

Despite the modest rise in December, a key shopping month, retail sales for all of 2010 reversed two years of contraction and posted the biggest gain in more than a decade.

The reports, which pointed to steady if modest recovery with scant price pressures, are unlikely to budge the U.S. Federal Reserve from its $600 billion bond buying program aimed at accelerating growth and lowering the lofty jobless rate.

Total retail sales climbed 0.6 percent, advancing for the sixth straight month as sales declines at electronics and general merchandise stores were offset by gains in gasoline and building materials sales, the Commerce Department said. Analysts polled by Reuters were expecting sales to gain 0.8 percent.

Excluding autos, sales rose 0.5 percent. Analysts had forecast a 0.7 percent increase.

Brian Jones, senior economist at Societe Generale in New York, called the retail sales report "mildly disappointing."

"There is some evidence that the year-end winter storm may have impacted some areas and held down the headline figure," he said, adding that the figure was likely to reduce the consumption portion of fourth-quarter growth by a small amount. But, "for the quarter as a whole, consumer retail sales were solid."

Total sales for the 12 months of 2010 were up 6.6 percent from the previous year after a 6.5 percent drop in 2009. It was the largest 12-month gain in sales since 1999.

Sharply higher prices at the pump pushed overall consumer prices up to their fastest pace in a year and a half, though core prices, which strip out volatile food and energy costs, barely budged, a Labor Department report showed.

Overall consumer prices rose a slightly more-than-expected 0.5 percent in December, but excluding volatile food and energy costs, retail prices rose just 0.1 percent, in line with expectations.

Overall consumer prices rose 1.5 percent from the same month a year ago, while core consumer prices gained 0.8 percent in 2010, the slowest calendar year pace since the department started keeping records in 1958.

Stock index futures added to losses after the data, while Treasuries pared losses on the sales data. The euro gained against the dollar on the retail sales report.

(Reporting by Mark Felsenthal, Additional reporting by Corbett B. Daly in Washington and Richard Leong in New York; Editing by Andrea Ricci)

JPMorgan, the first of the major U.S. banks to report earnings for the fourth quarter, said profit increased to $4.8 billion, or $1.12 a share, from $3.3 billion, or 74 cents a share, a year earlier. Analysts on average expected $1 a share, according to Thomson Reuters I/B/E/S.

"Although we continue to face challenges, there are signs of stability and growth returning to both the global capital markets and the U.S. economy," said Chief Executive Jamie Dimon.

Fewer bad loans meant the bank could reduce loan loss reserves for its credit card unit by $2 billion, or 30 cents a share after tax.

"The loan-loss reserves are something that bugs me," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor. "I would love to see a bank hit their numbers without taking from loan-loss reserves for once," he added.

The bank benefited from a turnaround in its retail banking unit, which reported a profit of $708 million compared with a loss of $399 million in the year-earlier quarter.

Revenue increased 6 percent to $26.7 billion.

The bank's shares fell 20 cents to $44.25 in premarket trading.

(Reporting by Elinor Comlay; Editing by Lisa Von Ahn and Steve Orlofsky)

* Intel Corp (INTC.O) will be in the spotlight after it posted better-than expected revenue and margins for the fourth quarter and gave a rosy outlook for early 2011, defying worries about the chipmaker's minor role in the booming smartphone and tablet computer market. Its shares traded in Frankfurt (INTC.F) were up 2.8 percent, while shares in semiconductor companies rallied on Friday in Japan and Europe.

* Investors awaited results from JPMorgan (JPM.N), which will kick off the banking sector's earnings season. The bank is seen posting lower trading revenues from its investment banking unit compared to the year earlier, while it boosted revenue from debt and equity underwriting.

* The market will also have a lot to digest on the macro front, with a flurry of data including the consumer price index, December retail sales and the Reuters/University of Michigan sentiment.

* Oil and metal prices lost ground on Friday. Alaska's main oil pipeline moved closer to restoring shipments to full volumes, while top metals consumer China's central bank raised lenders' required reserves by 50 basis points on Friday, its seventh increase since early 2009 in a bid to keep up a fierce campaign against quickening inflation.

* French drugmaker Sanofi-Aventis hopes to reach a takeover deal that would value U.S. target Genzyme (GENZ.O) at around $76 per share, or some $20 billion, the French daily newspaper Le Figaro said on Friday.

* U.S. stocks edged lower on Thursday, hurt by a slide in drugmaker Merck and as falling commodities prices hit shares of natural resource companies.

* The Dow Jones industrial average .DJI fell 23.54 points, or 0.20 percent, to 11,731.90. The Standard & Poor's 500 Index .SPX dropped 2.20 points, or 0.17 percent, to 1,283.76. The Nasdaq Composite Index .IXIC dipped 2.04 points, or 0.07 percent, to 2,735.29.

(Reporting by Blaise Robinson; Editing by Hans Peters)

Shares in British chip designer ARM jumped 10 percent to a 10-year high, while the wider European technology sector was up 0.5 percent by 3:50 a.m. ET.

U.S. group Intel, whose microprocessors are the brains in the bulk of the world's PCs, posted market-beating revenue and margins for the fourth quarter, and also gave a rosy outlook for early 2011 overnight.

"The expectations regarding the results of the semiconductor giant Intel were not really low but Intel could overdeliver again," Close Brothers Seydler strategist Roger Peeters said.

Earlier this week, research firm IDC said weak consumer demand coupled with a surge of tablet market capped the growth in global personal computer shipments at 3 percent in the fourth quarter.

RBS Capital Markets analyst Nick Hyslop said Intel's guidance was very strong for first quarter and the company did slightly better than expected in the fourth quarter, given a growing perception that Intel's position in tablets was weak.

"People were relieved from an Intel standpoint," he said, adding a good first quarter for Intel implied a good performance from ARM "given that ARM is doing all the tablets."

Intel was the first major technology company to report fourth-quarter results, and its upbeat numbers set a positive tone for the rest of the sector.

"Intel's good comments on server sales, coupled with the positive SAP statement late yesterday, indicate that corporations investment activity has been good in the fourth quarter," Pohjola Bank analyst Hannu Rauhala said.

German group SAP, Europe's biggest software maker, said on Thursday software sales jumped about a third in the fourth quarter.

In Japan, Tokyo Electron rose 2.8 percent to 5,530 yen, Sumco added 2 percent to 1,266 yen, and Nikon Corp gained 0.7 percent to 1,875 yen.

Dutch semiconductor equipment vendors ASML and ASMI rose 2.6 percent and 3.4 percent respectively.

(Additional reporting by Christoph Steitz in Frankfurt and Li Baker in Taipei; Editing by Dan Lalor)

European shares were expected to open lower with financial spreadbetters calling for declines of up to 0.5 percent.

The common currency fell prey to profit taking, having 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. It was last at $1.3338, slightly below late U.S. levels.

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

"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, fall below 80.000 from this week's high of 81.313.

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."

NIKKEI FALLS

Equity investors booked profits on recent gains ahead of the weekend, with stocks of resource companies like BHP Billiton (BHP.AX) further weighed by a pullback in oil and metals prices.

Japan's Nikkei average .N225 shed 0.9 percent, a day after reaching an eight-month high, while stocks elsewhere in Asia .MIAPJ0000PUS were flat.

Australia's S&P/ASX 200 index .AXJO nudged up 0.1 percent and Hong Kong's Hang Seng index .HSI put on 0.2 percent.