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The Securities and Exchange Commission is expected to propose that one of its key documents for securities offerings no longer include ratings references designed to give investors confidence in the company behind the securities offering.

The SEC's effort to extract rating references predates the financial crisis, but it lost steam when global financial markets started going into panic mode.

In 2009 the agency stripped some rating references from regulations, saying it was concerned about undue reliance on the ratings, but the removal of everything was not mandatory.

The Dodd-Frank financial law, however, changes that by requiring government agencies to go through their regulations and remove rating references.

On Wednesday, the SEC will resuscitate a similar plan it proposed in 2008, in its first move to remove ratings from its regulations since the Dodd-Frank law was enacted in July.

Credit-raters have often been blamed for helping fuel the crisis by giving overly positive ratings to loans backed by toxic subprime mortgages.

Dodd-Frank mandates some credit-rating reforms, such as mitigating conflicts of interest, holding credit-raters accountable for their ratings and reducing investor reliance on them.

But credit-raters such as Moody's Corp, McGraw-Hill Cos' Standard & Poor's, and Fimalac SA's Fitch Ratings are not facing the same sweeping overhaul as banks and mortgage lenders, largely because lawmakers could not come up with a good alternative to what they offer.

The lack of a good alternative has even caused some financial regulators to worry that Dodd-Frank goes too far, especially bank regulators who rely on ratings providers to assess the risk associated with a bank's capital.

MORE THORNY ISSUES AWAIT

The SEC's proposal on Wednesday specifically would strip rating references from a form known as an S-3, a simplified registration form designed to expedite the process for a primary offering of public securities.

A company can qualify to file an S-3 if it meets criteria that make the SEC comfortable with it's getting greater access to the public securities market.

Companies offering nonconvertible debt securities, for instance, can qualify for an S-3 filing as long as the debt is given an investment grade rating.

The SEC plans to propose stripping out that rating requirement and replacing it with an alternative.

Increased investor appetite for riskier assets was also evident in the bond market, with the five-year Japanese government bond yield climbing to a 15-month high, continuing a global trend of rising yields on government debt.

China raised interest rates by 25 basis points late on Tuesday, its second increase in just over six weeks. The timing was a surprise, coming on the final day of the Lunar New Year holiday, but investors had been expecting further tightening from Beijing to rein in stubbornly high inflation.

"Chinese policymakers' efforts to rein in overheating pressures are now seen in a relatively more positive light by global investors in that they will help slow growth to a more sustainable pace, while other engines of growth in the region begin to rev up," said Samarjit Shankar, analyst at BNY Mellon.

Mainland Chinese stocks .SSEC on their first day of trading following a week-long break, see-sawed between positive and negative territory and Hong Kong shares .HSI opened firmer before dipping into the red. .SS

Japan's Nikkei .N225 was up 0.2 percent after touching a 9-month high and Australia's benchmark index .AXJO was also up 0.3 percent. .T

But MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent, weighed down by a 1 percent decline in South Korean stocks .KS11, with market players reporting weakness in firms most exposed to China and a stronger won.

"The Chinese rate hike had been expected for some time," said Lee Sun-yeb, a market analyst at Shinhan Investment Corp in Seoul. "However, investors are reacting to it be offloading issues that are sensitive to forex swings and Chinese demand."

SWITCHING FUNDS

Japan has been Asia's best performing market so far this year as healthier corporate profits and worries about building inflationary pressures have encouraged investors to switch money from fast-growing emerging markets -- last year's star performers -- to developed market equities.

The Dow Jones industrial average .DJI notched a seventh straight day of gains on Tuesday, rising 0.6 percent, as surprisingly strong sales by McDonald's boosted optimism about consumer spending.

But technical indicators show it is overbought after a strong run-up that began in September, leaving U.S. markets prone to a pullback or a correction.

While monetary policy in the rich world remains ultra-loose, central banks in emerging markets, especially in Asia, have been tightening policy to rein in inflation fueled by rising commodity and energy prices and strong domestic growth.

Higher borrowing costs in China could support Asian currencies -- generally unwelcome for the exporters that power many regional economies -- by highlighting policymakers determination to tackle rising prices.

"Looking at this rate hike from a regional perspective, it is a necessary move to curb inflation pressures in the region," said Pin Ru Tan, emerging markets forex and rates strategist at the Royal Bank of Scotland in Singapore.

Surprisingly strong sales by McDonald's boosted optimism on consumer spending and drove the Dow's gains on what turned out to be the quietest day of trading so far in 2011, with total volume about 17 percent below last year's daily average.

The light volume, "textbook wise, tells you this market is running on fumes," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "But that doesn't mean it can't continue."

Weakness in energy shares limited gains in the S&P 500 and Nasdaq after China, the world's second-biggest energy consumer, raised interest rates for the second time in six weeks. The move pressured commodities on fears of lower demand but had little market impact outside that sector.

"The rate hike is important, but it isn't at a critical level where it becomes troublesome," said Michael Mullaney, a portfolio manager who helps manage $9.5 billion at Fiduciary Trust Co in Boston.

McDonald's Corp (MCD.N) shares surged 2.6 percent to $75.36 after its January same-store sales beat expectations, led by a rebound in European demand. The S&P consumer discretionary index .GSPD was up 1.2 percent and was by far the top performer among S&P sectors.

"McDonald's had a really great number and is a sign that consumer spending is rebounding," Mullaney added, noting that his fund owns the stock.

The Dow Jones industrial average .DJI was up 71.52 points, or 0.59 percent, at 12,233.15. The Standard & Poor's 500 Index .SPX was up 5.52 points, or 0.42 percent, at 1,324.57. The Nasdaq Composite Index .IXIC was up 13.06 points, or 0.47 percent, at 2,797.05.

Just 6.99 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's daily average of 8.47 billion.

In extended trading, Dow component Walt Disney Co (DIS.N) shares jumped 3.2 percent after it reported forecast-beating first-quarter earnings and revenue, as consumers traveled to its theme parks and businesses bought up ad time on its TV networks.

The S&P energy sector .GSPE was by far the weakest S&P sector, down 0.5 percent. U.S. crude for March delivery settled down 0.6 percent.

Merger activity continued for a second straight day with Kindred Healthcare Inc's (KND.N) planned acquisition of RehabCare Group Inc (RHB.N) to create a post-acute healthcare services company.

Kindred Healthcare jumped 28.3 percent to $25.00 and RehabCare soared 45.5 percent to $37.05.

On the downside, U.S.-listed shares of generic drugmaker Teva Pharmaceutical Industries' (TEVA.O) fell 5.4 percent to $52.02 after it reported results that fell short of forecasts.

Avon Products Inc (AVP.N) posted a steeper-than-expected drop in quarterly profit. Shares of the cosmetics company fell 3 percent to $28.47.

(Editing by Leslie Adler)

Prosecutors on Tuesday accused the two former employees, among four new defendants charged with insider trading, with receiving corporate secrets while working at SAC. The firm itself has not been charged with any wrongdoing.

The government has been investigating current and former SAC employees, sources have told Reuters, since prosecutors announced a huge insider trading case involving Galleon Group hedge fund founder Raj Rajaratnam in October 2009.

A number of SAC's former analysts and traders were questioned over the course of the Galleon investigation, but none had been charged in that case for their activities at the Stamford, Connecticut-based fund.

The latest charges were announced by federal prosecutors investigating ties between hedge funds and consultants for so-called expert networking firms -- businesses that match hedge funds seeking information with industry consultants.

One of the former SAC employees, Noah Freeman, agreed to plead guilty and is cooperating with the investigation, prosecutors announced Tuesday. Freeman's lawyer, Ben Rosenberg of Dechert LLP, did not return calls seeking comment.

The other former SAC employee, Donald Longueuil, was arrested Tuesday morning at his Manhattan home on charges of conspiracy and obstruction of justice.

During a brief appearance in U.S. District Court in New York, a magistrate judge approved Longueuil's release on $1.5 million bond. His lawyer, Craig Carpenito of Alston & Bird LLP, declined to comment.

SAC said it is cooperating with the government probe. A spokesman for Cohen said the high-profile hedge fund manager was "outraged by the alleged actions of two former employees" and noted SAC had fired both Freeman and Longueuil in 2010.

The government announced charges on Tuesday against two others: hedge fund manager Samir Barai and an analyst who worked at his fund, Jason Pflaum.

Barai, a former Citigroup hedge fund manager who left to launch Barai Capital Management, surrendered to FBI agents. A judge permitted his release on $1 million bond. Barai's lawyer, Evan Barr of Steptoe & Johnson LLP, declined to comment.

Pflaum has agreed to plead guilty and like Freeman is cooperating with the investigation. Pflaum's lawyer, Michael Grudberg of Stillman, Friedman and Shechtman PC, declined to comment.

Since November, prosecutors have charged more than a dozen people in this newest crackdown on insider trading in the $1.9 trillion hedge fund industry.

Tuesday's charges mark the expansion of the probe beyond expert networking firm consultants and employees to hedge fund employees suspected of receiving secret tips on technology stocks.

'VERGING ON CORRUPT BUSINESS MODEL'

The findings vindicated Toyota's position that it had identified and fixed the only known safety problems with popular vehicles like the Camry by focusing on mechanical issues with accelerator pedals and the risk that floormats could trap the pedal in the open position.

"There is no electronic-based cause for unintended high-speed acceleration in Toyotas," U.S. Transportation Secretary Ray LaHood said in a statement on Tuesday.

Toyota's U.S.-traded shares closed 4 percent higher, buoyed by the government findings and the automaker's smaller than expected dip in quarterly earnings and higher sales forecast.

The probe by National Highway Traffic Safety Administration and NASA engineers followed questions by some safety advocates and lawmakers about whether software-driven throttles and flaws with electronic control systems had also played a role in unintended acceleration complaints.

Investigators concluded that most reports of runaway acceleration could be explained by driver error.

"What mostly likely happened was pedal misapplication. The driver stepped on the gas instead of the brake, or in addition to the brake," said Ronald Medford, NHTSA's deputy administrator.

Steve St. Angelo, a Toyota executive tasked with shoring up quality after last year's recalls, said the automaker hoped the study would "put to rest unsupported speculation" about the safety of Toyota's electronics.

"We believe this rigorous scientific analysis by some of America's foremost engineers should further reinforce confidence in the safety of Toyota and Lexus vehicles," he said in a statement.

LaHood, who had touched off a panic a year ago by urging Toyota owners with concerns to stop driving them, offered a blanket endorsement on Tuesday.

"We feel Toyota vehicles are safe to drive," LaHood said, adding that he recommended to his daughter that she buy a Sienna minivan after she sought his opinion.

WINNING BACK CUSTOMERS

Although Toyota has cleared a major hurdle in its ongoing safety saga, analysts cautioned that it would still struggle to win back American consumers who have defected from the brand and its luxury counterpart Lexus.

Toyota lost ground in the U.S. market in 2010, its market share fell from 17 percent at the end of 2009 to just over 15 percent in December.

"This is certainly going to help Toyota, but it doesn't change the fact that they let these other issues through," said TrueCar.com analyst Jesse Toprak. "They're still going to face difficulties to bring people back to Toyota."

The Big Board parent is banking on a nascent U.S. futures business, hefty investments in technology, and an economic rebound to reverse a decline in global trading that drove its fourth-quarter profits down 21 percent.

Chief Executive Duncan Niederauer, speaking on a conference call with analysts and media, said 2011 "should provide a better environment for doing business," citing a return of investor confidence and healthier corporate balance sheets.

The fourth-quarter results, reported Tuesday, narrowly beat analysts' expectations and the company's shares slipped, underlining some of the possible pitfalls ahead as NYSE Euronext heads into uncharted terrain.

"The biggest wild card is probably the economic activity in Europe, and also volatility," said Chris Allen, analyst at Evercore Partners. "It's the slow economic activity and slow volatility world that would be the worst case scenario from a trading perspective."

NYSE Euronext's full-year profit, after dropping 31 percent in 2009, rose 3 percent in 2010. It is expected to rise 19 percent in 2011 and 18 percent in 2012, according to Thomson Reuters I/B/E/S.

"If people have been impatient waiting for the progress, now we're starting to see some of that," said Allen. "The real big payoff will be in 2011 and into 2012."

The transatlantic exchange group said it expects trading to rebound as the global economy recovers this year, and it projected slightly lower costs.

The company aims to tackle Chicago-based futures giant CME Group Inc (CME.O) head on in a matter of weeks with a new U.S. interest-rate futures exchange and clearinghouse, and hopes to attract more high-frequency trading (HFT) firms with new data centers near New York and London.

The initiatives should drive growth in 2011, NYSE Euronext said, and are part of its battle against trading rivals that have steadily eroded its dominant position in the core U.S. and European markets in recent years.

The company is at the tail end of combining several venues, data centers and asset classes that came together in the blockbuster 2007 merger of NYSE Group and Euronext.

Weak trading of U.S. stocks and European derivatives drove fourth-quarter profits down to $120 million from $151 million a year earlier. Revenue fell 4 percent to $613 million.

The company earned 46 cents per share, 3 cents above analysts' average forecast, according to I/B/E/S.

NYSE Euronext shares were off 1 percent at $33.41 in afternoon trade in New York on Tuesday, giving back some of Monday's gains. The Paris-based shares slid 1.4 percent to 24.18 euros.

A NEW LIFFE IS BORN

The encouraging result for Toyota stems from a 10-month probe ordered by Congress following recalls of nearly 8 million of its best-selling models in the United States over defective floor mats and accelerator pedals that hurt its reputation for quality.

Some safety advocates and congressional investigators questioned whether software-driven throttles also played a role in unintended acceleration complaints.

"There is no electronic-based cause for unintended high-speed acceleration in Toyotas," U.S. Transportation Secretary Ray LaHood said in a statement.

Toyota's U.S.-traded shares were up 4 percent in afternoon trade on the New York Stock Exchange, shortly after the release of the findings.

Although Toyota has cleared a major hurdle in its ongoing safety saga, regulators said they would consider imposing requirements for all vehicles to have braking systems that automatically counteract any instances of unintended acceleration.

Toyota, which has put electronically controlled throttles in its vehicles since 2002, has consistently said those systems were safe.

The probe by National Highway Traffic Safety Administration and NASA engineers found that the only causes of the unwanted acceleration were the previously identified sticking accelerator pedals and loose floormats that could jam the pedals.

Those problems were the root of massive recalls in 2009 and 2010 that created a safety crisis that rocked Toyota to its foundations.

Regulators are looking into 89 deaths that may be associated with sudden acceleration in Toyota and Lexus vehicles but have so far linked only a handful to the floor mat problem.

Although the investigation turned up no flaws that would prompt another massive recall, Toyota still faces significant risks from scores of civil lawsuits stemming from the recalls.

Those cases in federal and state courts, which may turn on the timing of company disclosures to regulators of already established defects, have an estimated potential liability of up to $10 billion.

(Reporting by John Crawley and David Lawder; Editing by Tim Dobbyn)

The charges mark the latest development in a broad probe of hedge funds' trading activities. Authorities had previously brought criminal charges against eight people tied to a so-called expert networking firm who are accused of improperly leaking confidential corporate information to hedge funds. Tuesday's charges are the first against hedge fund managers in the probe.

The U.S. Attorney in Manhattan said a press conference would be held at noon to announce the charges. FBI and U.S. Securities and Exchange Commission officials were also scheduled to attend.

Hedge fund manager Sam Barai, head of Barai Capital Management, has surrendered to authorities in connection with the case, a person familiar with the situation said. The person was not authorized to discuss the case publicly.

Barai, a former hedge fund managing director at Citigroup's Tribeca Global Management, launched Barai Capital Management in 2008. The fund, which focuses on technology and media companies, is in the process of closing.

Barai's fund was one of four raided by federal agents late last year when the trading probe was heating up. The raids shocked the $1.9 trillion hedge fund world, and were followed by dozen of subpoenas to hedge funds and mutual funds that did business with various expert network firms and consultants.

Another hedge fund manager also was arrested Tuesday in Manhattan in connection with the case, an FBI source said.

The Wall Street Journal reported Tuesday that charges also were to be unsealed against Jason Pflaum, a technology analyst. He could not immediately be reached for comment.

Other defendants' names were not immediately available. Prosecutors said two of the portfolio managers would also be charged with obstruction of justice.

The U.S. Attorney's office and the SEC declined to comment.

(Additional reporting by Martha Graybow, Jonathan Stempel, Emily Chasan and Svea Herbst-Bayliss; Editing by John Wallace and Derek Caney)

Despite a report last week showing only 36,000 jobs were created in January, Lacker said other measures were pointing to a firmer economic recovery and better employment prospects.

"An array of forward-looking indicators of employment trends point to continued labor market improvement," Lacker, a known inflation hawk, told a business gathering at the University of Delaware.

In November, the Fed launched a controversial bond-buying program to support a fragile recovery. Lacker noted the central bank had committed to regularly reviewing the pace and size of purchases.

"The distinct improvement in the economic outlook since the program was initiated suggests taking that reevaluation quite seriously," he said.

Lacker expects the U.S. economy, the world's largest, to expand by about 4 percent in 2011, a rate he said should be sufficient to boost hiring and lower unemployment.

The U.S. jobless rate fell to 9.0 percent in January.

Fed Chairman Ben Bernanke made clear in remarks last week that he does not consider the progress sufficient to declare victory and begin withdrawing monetary support.

While many Fed officials consider inflation to be too low at the moment, Lacker reiterated his case that prices are actually "low and stable."

Indeed, he said, it was still unclear whether recent spikes in commodities prices would have longer-lasting effects on U.S. consumer prices.

"The effect on overall inflation could be transitory, or could persist if firms, encouraged by accelerating demand growth, pass input prices on to their customers," Lacker said.

"Such pickups in inflation are common at this point in business cycle upturns, and would be consistent with the expected inflation rates implied by prices of inflation-indexed U.S. Treasury debt," he added.

Some analysts blame the Fed's ultra-loose monetary stance for boosting financial market liquidity and helping to fuel runaway gains in commodities that have pushed up the costs of basic goods like food and energy.

The timing was a surprise, coming on the final day of China's Lunar New Year holiday, but investors have long expected more monetary tightening as Beijing struggles to rein in price pressures and ward off a property bubble.

Benchmark one-year deposit rates will be lifted by 25 basis points to 3 percent, while one-year lending rates will also be raised by 25 basis points to 6.06 percent, the People's Bank of China said. The rises take effect from February 9.

Although annual inflation slowed to 4.6 percent in December, it is expected to have picked up again in January with food prices soaring.

"It is the first interest rate rise in the Year of the Rabbit, but it will not be the last," said Xu Biao, an economist with China Merchants Bank in Shenzhen, referring to the Chinese New Year, which began last week.

Fearing tighter monetary policy will dampen China's demand, commodity markets fell after the central bank announcement. Three-month copper fell below $10,000 a metric ton and U.S. crude futures prices dropped.

The MSCI world equity index held on to gains, trading up 0.15 percent, but the FTSEurofirst 300 index was down 0.3 percent, turning negative after China's move.

TIGHTENING CYCLE

This is the third rate increase since China began a monetary tightening cycle in earnest in October.

"I didn't think it (China's rate hike) would happen today, but it doesn't matter whether you think it will happen today or tomorrow. You know that interest rates are going up," said Mike Lenhoff, chief strategist at Brewer Dolphin in London.

With inflation running near its fastest in over two years, Beijing hopes higher rates will encourage savers to keep more of their money in banks and also weigh on the demand for mortgage loans.

Anti-inflation talk from the central bank in recent months has primed investors for more policy tightening and, even with the latest move, many believe further tightening is on the cards.

A Reuters poll in December showed economists expect the one-year deposit rate to climb to 3.25 percent by June.

While tighter policy may put a lid on China's growth and has taken a toll on the country's share market, many analysts believe any economic slowdown will be moderate.

If anything, that China is tightening policy at a time when U.S. and euro zone interest rates are at record lows is a mark of confidence within the country that its economy, the world's second-largest, is on solid ground.

(Writing by Simon Rabinovitch; Editing by Neil Fullick)

The world's largest direct seller of cosmetics earned $229.5 million, or 53 cents per share, compared with a profit of $269.4 million, or 62 per share, a year earlier.

Avon said on February 1 that it would record restructuring charges of about $58 million, or 9 cents per share, in the fourth quarter.

Adjusted earnings from continuing operations fell to $259 million, or 59 cents per share, from $293 million, or 68 cents per share, a year earlier. Analysts had expected a profit of 67 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 1.3 percent to $3.18 billion, missing analysts' average target of $3.28 billion.

(Reporting by Jessica Wohl, editing by Maureen Bavdek)

Merger activity drove the Dow and S&P to 2-1/2 year highs on Monday, in a sign more gains could be in store for equities.

Corporate earnings will once again dictate near-term direction, with Walt Disney (DIS.N) and Sara Lee (SLE.N) among those scheduled to release results.

Exchange group NYSE Euronext (NYX.N) reported a smaller-than-expected 21 percent fall in quarterly profit, reflecting weaker trading activity amid growing competition.

UBS (UBS.N) said it expected to win back more client business in 2011 and had laid the foundations for a rebound in its investment bank.

Intel (INTC.O) resumed shipments of a flawed chipset for use with its new cutting-edge processors, responding to demands from PC makers who will use the chips selectively.

On the economic front, U.S. consumer credit surged in December as shoppers boosted their credit-card debt for the first time in more than two years, supporting views economic activity was gathering momentum.

U.S. Federal Reserve Chairman Ben Bernanke is to deliver semi-annual monetary policy testimony to Congress on March 1 and 2, aides said on Monday.

European shares were lower in early trade, in a broad sell-off from the previous session's 29-month closing high.

(Reporting by Harpreet Bhal; Editing by Dan Lalor)

Japan's No.2 Nissan Motor Co is also expected on Wednesday to report a drop in third-quarter profits due to the stronger yen and falling demand in Japan and smaller rival Honda Motor Co has already posted weaker results for the period. But the decline at Toyota is set to be the deepest given its heavier exposure to unprofitable exports from Japan.

"(The revised outlook) is slightly above the market consensus, but since the company had been widely expected to raise its forecast, it's no surprise," said Kazuyuki Terao, chief investment officer at RCM Japan in Tokyo. "Compared with other Japanese automakers, Toyota has greater exposure to the domestic market and therefore is more subject to the negative impact of the country's slow economic growth."

BIG EXPORTER

Toyota exported more than half of its Japan-made vehicles last year, making a loss on many of them with the dollar well below the rate of 90 yen that President Akio Toyoda has said is the minimum to keep Japan's manufacturing sector competitive.

For the full year to March 31, Toyota raised its forecast for annual operating profit to 550 billion yen ($6.68 billion) from a cautious 380 billion yen, after profits for the first nine months exceeded that figure.

Toyota improved profitability by paring costs, helped by better than expected sales in Japan, the rest of Asia and Russia, senior managing director Takahiko Ijichi told a briefing.

"We now expect to overcome rapid and acute yen appreciation," Ijichi said.

Still, analysts say, Toyota's disproportionately big Japanese operations -- it has 17 assembly plants across the group -- will remain the major drag on its earnings.

A survey of 23 analysts by Thomson Reuters I/B/E/S ahead of the results had forecast annual operating profit of 489 billion yen for Toyota.

Some industry watchers say Toyota could continue to suffer the lingering effects of last year's recall crisis, especially as consumers have more car models to choose from with the expansion of Volkswagen AG and Hyundai Motor Co in the United States.

The U.S. Department of Transportation is due later on Tuesday to release its long-awaited findings of the review of Toyota's electronic throttles over complaints of unintended acceleration -- the problem behind most of the recalls in the crisis.

"This year should be a consolidation year for Toyota as they recover from the recall," said Neo Chiu Yen Vice President, Equity Research Asia, at ABN AMRO Private bank in Singapore.

"I would like to see progress in rebalancing of their production footprint to mitigate eroding export margins. Toyota is quite dependent on the U.S. market."

Toyota nudged up its global sales forecast to 7.48 million vehicles from 7.41 million, with domestic sales expected to reach 2.02 million vehicles compared with an earlier prediction of 1.99 million. It kept its U.S. forecasts unchanged at 2.09 million units.