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A broad sell-off in Asia since the start of 2011 on inflationary worries has shown no signs of abating, as expectations of more monetary tightening have encouraged investors to shift funds from emerging to developed markets.

Analysts said the selling in emerging markets could have some more room to run, especially in countries where stocks are ripe for a pullback after last year's stellar gains and the near term interest rate outlook is unclear.

On Friday, Taiwan .TWII shares ended down more than two percent, stock markets in Thailand .SETI and Korea were down one percent, while Australia's benchmark index .AXJO snapped a seven-day winning streak a investors took profits from banking and resource shares.

MSCI's index of Asia Pacific shares-ex-Japan .MIAPJ0000PUS is set to fall by more than 4 percent this week, its worst performance since May 2010.

So far this year, Asian shares have underperformed the MSCI world index .MIWD00000PUS by five points as traders cut positions due to a steady drip of strong data out of the U.S.

"Pressure on emerging market equities may well, therefore, continue while uncertainties about the intensity, duration and effect of the ongoing tightening cycle remain alive," Barclays strategists said in a weekly note.

This week alone, China raised interest rates, Philippines held rates but raised its inflation forecast and Bank of Korea surprised markets by holding rates steady, although it is widely expected to tighten again in March.

Foreign selling has picked up in Asian shares, especially in South Korea this week while offshore selling in Taiwan on Thursday was the biggest in six months.

Indonesian shares .JKSE fell 0.6 percent with shares in PT Garuda Indonesia GIAA.JK, the nation's state-owned carrier, tanking by more than 20 percent on debut.

Japanese markets were closed for a national holiday.

METALS GAIN

Copper rose back above $10,000 per tonne, while tin prices hit a record high as strong U.S. jobless data reassured investors about the pace of the recovery in the world's biggest economy.

Egyptian President Hosni Mubarak's plans to relinquish powers but not step down did little to boost investor hopes of a quick solution to the Egyptian crisis and lifted oil prices.

Gold, was steady at around $1,364 an ounce and U.S. crude oil futures rose 88 cents to $87.61 a barrel.

It could also run into hurdles in Washington as U.S. lawmakers and regulators consider whether they are prepared to allow the citadel of American capitalism to fall into foreign hands, although there has been virtually no public criticism in the United States as yet.

The companies said on Wednesday they are in "advanced talks" to join forces and create an exchange operator with unprecedented global reach and -- most worrisome for regulators -- a dominant grip on Europe's lucrative derivatives markets.

While executives from Frankfurt and New York have hatched a tentative agreement, there are still obstacles that must be overcome -- the same ones that scuppered past attempts to combine Deutsche Boerse with Paris-based Euronext.

"These key questions are not yet resolved," a senior German financial source told Reuters on Thursday.

A financial regulator from the German regional state of Hesse -- which must approve the deal -- said it would seek to preserve the interests of Frankfurt as a financial center. Likewise, French regulator AMF said it would be vigilant about preserving Paris' status.

Once notified, European Commission competition authorities initially have 25 days to decide whether to approve a deal but can also seek an in-depth investigation that can take some months including extensions.

"The biggest danger of a failure for the deal at this point is antitrust concerns in the derivatives market, because Eurex and Liffe would have a market share of more than 90 percent in Europe," said Stefan Brugger, a fund manager at Union Investment in Frankfurt. "We consider these concerns as overdone," he added.

U.S. politicians were unusually quiet about the deal that would see the Big Board bought out and would put more than 40 percent of U.S. options trading under one roof.

New York Mayor Michael Bloomberg, the first major U.S. public figure to comment, said he supported the plan. "It's going to give us access to Europe, and the Europeans access to the States in a way that our competitors, like London, will not have," he told reporters in New York.

While U.S. Representative Carolyn Maloney of New York said she supported the deal, five senior lawmakers with market oversight duties declined to comment. And U.S. Commodity Futures Trading Commission Chairman Gary Gensler declined to comment.

In another sign that barriers remain in Europe, French Economy Minister Christine Lagarde said she was watching negotiations closely with an eye on market stability and security, and the development of value on French soil.

DERIVATIVES SPAT

The companies have released few details about the proposed merger, which would see Deutsche Boerse's shareholders in the driving seat with 60 percent control and create an exchange behemoth with more than $20 trillion in annual trading volume.

The combination of Deutsche Boerse's Eurex and NYSE Euronext's London-based Liffe platforms would dominate trading in interest rate, fixed-income, and equity- and index-based products in Europe.

The Dow ended slightly lower, breaking an eight-day rally after network equipment maker Cisco Systems Inc (CSCO.O) gave a weak outlook.

The S&P and Nasdaq wavered in volatile late-day action as Mubarak began a speech in response to the weeks of civilian protests. Earlier in the day, as media reports spread that Mubarak might resign, equities rebounded off early lows sparked by the disappointment over Cisco.

"The moment Mubarak said he would be giving up duties to his vice president, the market said it was a good thing and rose," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co in New York.

"There was an initial reaction that things would be better, but that doesn't seem to be the case," Holland added. Mubarak's speech enraged protesters, who reacted with chants of "Down, down Hosni Mubarak."

More than two weeks of civilian unrest in Egypt have created some uneasiness among global investors on fears that political instability could spread through the region and impact commodities.

The Van Eck Market Vectors exchange-traded fund (EGPT.P) ended up 0.45 percent, cutting gains late when it appeared that Mubarak was not stepping down. Previously, the fund had risen as much as 5.8 percent.

Volume on Wall Street was stronger than in recent days, which had seen some of the thinnest trade of the year. But with a total of about 8.15 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, volume was still below last year's daily average of 8.47 billion.

"Egypt stopped us from dropping lower, but the low volume means that people are skeptical of the climb we've had," said Michael Nasto, senior trader at U.S. Global Investors Inc in San Antonio, Texas. The Dow and S&P are both up more than 5 percent since the start of 2011.

Cisco shares tumbled 14 percent to $18.92 on heavy volume a day after the outlook, but chief competitors surged as investors see Cisco losing market share. Juniper Networks (JNPR.N) rose 7.6 percent to $43.40 and the Networking Index .NWX surged 3.5 percent.

The Dow Jones industrial average .DJI was down 10.60 points, or 0.09 percent, at 12,229.29. The Standard & Poor's 500 Index .SPX was up 0.99 points, or 0.07 percent, at 1,321.87. The Nasdaq Composite Index .IXIC was up 1.38 points, or 0.05 percent, at 2,790.45.

Also weighing on the Dow was Wal-Mart Stores Inc (WMT.N), which fell 2 percent to $55.59 after UBS downgraded the stock to "neutral" from "buy." UBS said a sales recovery at the retail giant could take longer than expected.

New U.S. claims for unemployment benefits dropped to their lowest level in 2-1/2 years, the government said on Thursday, in a sign the labor market was improving.

Kraft Foods Inc (KFT.N) fell in extended trading after it reported fourth-quarter results. The stock, a Dow component, was off 1.3 percent to $30.72.

Disappointing earnings overseas hurt sentiment as Credit Suisse (CSGN.VX)(CS.N) missed profit expectations. The bank's U.S.-traded shares dropped 7.2 percent to $43.27 while peer Deutsche Bank (DB.N) fell 2.6 percent to $62.61 on the New York Stock Exchange.

Both are relatively new chains that are rapidly adding more restaurants. They have found a following among diners who are willing to pay a bit more for quick meals made with upscale ingredients like naturally raised meats and artisan cheese.

Chipotle and Panera have chalked up 12-month gains of about 160 percent and 40 percent, respectively, on industry-leading sales trends, and investors have wondered how long their outperformance would last.

Chipotle, which features organic and natural ingredients, on Thursday said fourth-quarter sales at established restaurants jumped 12.6 percent, an acceleration from the 11.4 percent climb in the prior quarter.

The Denver-based burrito chain also reported quarterly profit that topped Wall Street's view and repeated its forecast of a low-single-digit percentage gain in 2011 same-store sales.

Shares in the company -- now facing a widening federal crackdown on its undocumented work force -- rose 8.6 percent to $278.80 in extended trading.

Panera, which serves lavish sandwiches, salads and pastries, said same-store sales at company-owned bakery-cafes rose 5.2 percent in the fourth quarter.

The company on Thursday reported fourth-quarter profit above analysts' average view, boosted its full-year earnings forecast and called for 2011 same-store sales growth of 4 to 6 percent. Panera's shares jumped 10.5 percent in extended trading.

Results from another high-flying restaurant chain, BJ's Restaurants Inc, disappointed with a quarterly profit that just matched Wall Street's view. Its shares, which are up 85 percent over the past year, fell 4.2 percent to $37.07.

The restaurant and brewery operator said sales at established restaurants rose 5.9 percent during the fourth quarter and were up by roughly the same amount so far this quarter.

California Pizza Kitchen Inc and Cheesecake Factory Inc also reported better-than-expected quarterly earnings on Thursday, but their sales trends lagged.

California Pizza Kitchen reported a 1.1 percent decline in sales at established full-services restaurants, while Cheesecake Factory said same-restaurant sales at its namesake eateries rose 1 percent. Shares in those chains were unchanged in extended trading.

RISKS LOOM

After years of cutting back, diners are venturing out for meals away from home more often. But consumer spending remains cautious and it's not yet known how much restaurant operators will be able to raise menu prices to offset higher costs for food like beef, dairy, cooking oil and produce.

Chipotle executives said they would likely raise menu prices later this year to cover their higher bill for food.

Investors wanted to see signs of continued strength in sales at established restaurants -- a benchmark for restaurant performance -- and got just that from Chipotle and Panera.

Shares in these restaurants have risen sharply this year on industry-leading gains in sales, and investors have wondered how long their outperformance could last.

Chipotle, which features organic and natural ingredients, said fourth-quarter sales at established restaurants jumped 12.6 percent, an acceleration from the 11.4 percent climb in the prior quarter.

Shares in the popular burrito chain, which also reported quarterly profit that topped Wall Street's view, rose 6.9 percent to $274.44 after it repeated its forecast of a low-single-digit percentage gain in 2011 same-store sales.

Chipotle's stock has chalked up a 12-month gain of almost 160 percent.

Panera's shares have risen 38 percent in the last 12 months. Panera, which serves lavish sandwiches, salads and pastries, said same-store sales at company-owned bakery-cafes rose 5.2 percent in the fourth quarter.

The company on Thursday reported fourth-quarter profit that beat analysts' average view, boosted its full-year earnings forecast and called for 2011 same-store sales growth of 4 to 6 percent. Its shares jumped 10.6 percent.

BJ's Restaurants Inc (BJRI.O), a restaurant and brewery, said sales at established restaurants were up 5.9 percent. It reported a gain of 6.7 percent for the third quarter.

But BJ's fourth-quarter profit just matched analysts' view, and shares in BJ's, which have gained about 85 percent over the last year, fell 4 percent to $37.09 in extended trading.

(Reporting by Lisa Baertlein and Renju Jose in Bangalore; Editing by Gary Hill)

No reason was cited for Warsh's decision. He joined the Fed on February 24, 2006, and will have served just over five years when he leaves at the end of March. His term was not due to expire until January 31, 2018.

A Fed official said Warsh had no immediate career plans after leaving the Fed.

The departure of Warsh, a former banker at Morgan Stanley, may tilt the balance of views at the Fed's influential Washington-based nucleus, favoring those who support further monetary easing if economic weakness persists.

The U.S. central bank is at a crucial, unprecedented juncture in its history. Having pushed interest rates all the way to zero in response to the worst recession in generations, the Fed has also made commitments to purchase a total $2.3 trillion in government and mortgage bonds.

Economists say history will judge the Fed not simply for its response to the crisis but in its ability to withdraw this stimulus in a timely manner, an issue that has been a high priority for Warsh.

While his public appearances and speeches were relatively infrequent, they often made a splash, as with a Wall Street Journal editorial piece expressing skepticism about the Fed's $600 billion bond-purchase program published just days after its launch in November.

Another key op-ed, back in September 2009, spooked financial markets by suggesting that the Fed's eventual exit from such extraordinary stimulus measures might be more rapid and abrupt than investors had been expecting.

A graduate of Harvard Law School, Warsh is among the Fed's richest top officials. Financial disclosures released in July stated that as of 2009, his wife Jane Lauder, granddaughter of the founder of the Estee Lauder cosmetics company, had assets worth at least $66.3 million. Warsh listed assets worth between $702,000 and $1.5 million.

Warsh's appointment by former President George W. Bush was seen as controversial at the time. Then 35, Warsh, whose background is in law rather than economics, was seen as lacking experience and being too politically connected to the Bush White House.

However, he emerged as a key player during the financial crisis, as Fed Chairman exploited Warsh's ties to the banking sector as a way to keep open communications between the central bank and key firms.

Along with former Fed Vice Chair Donald Kohn and Treasury Secretary Timothy Geithner, Warsh quickly became part of Bernanke's inner circle.

"Kevin rendered the Federal Reserve and the nation exemplary service during his time at the Board," Bernanke said in a statement. "In particular, his intimate knowledge of financial markets and institutions proved invaluable during the recent crisis.

"I deeply appreciate his insights and wise counsel and, most especially, his fortitude and friendship during the difficult days, nights and weekends of the crisis," Bernanke added.

Initial claims for state unemployment benefits fell 36,000 to a seasonally adjusted 383,000, the lowest since early July 2008, the Labor Department said.

Economists polled by Reuters had forecast claims slipping to 410,000. The prior week's figure was revised up to 419,000, from the previously reported 415,000.

The data, coming on the heels of Friday's report showing the economy created a paltry 36,000 jobs in January, added to other employment indicators that have pointed to a gain in momentum in the labor market.

Initial claims breached the 400,000 mark and economists say a sustained move below that level would signal strong job growth.

A Labor Department official said claims were still unwinding some of the weather effects that pushed up applications last month.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 16,000 to 415,500 last week.

The number of people still receiving benefits under regular state programs after an initial week of aid declined 47,000 to 3.89 million in the week ended January 29 from an upwardly revised 3.94 million the prior week.

Economists had expected so-called continuing claims to fall to 3.90 million from a previously reported 3.93 million.

The number of people on emergency unemployment benefits increased 100,366 to 3.76 million in the week ended January 22, the latest week for which data is available. A total of 9.4 million people were claiming unemployment benefits during that period under all programs.

The maker of Pepsi-Cola and Frito Lay snacks saw its shares fall 1.8 percent in premarket trading, despite posting a fourth-quarter profit that beat Wall Street estimates by a penny.

PepsiCo said net income fell 5 percent to $1.37 billion, or 85 cents per share, in the quarter that ended on December 25, from $1.43 billion, or 90 cents per share, a year earlier.

Excluding items, earnings were $1.05 per share, topping analysts' average estimate of $1.04 per share, according to Thomson Reuters I/B/E/S.

Its sales jumped 37 percent to $18.16 billion, helped by the acquisition last year of its two largest bottlers.

PepsiCo said it now expects full-year earnings to grow 7 percent to 8 percent. In October it said it expected growth of 11 to 12 percent, down from a prior forecast of 11 to 13 percent.

Its shares fell $1.13 to $63.29 in premarket trading, from Wednesday's close of $64.42 on the New York Stock Exchange.

(Reporting by Martinne Geller, editing by Maureen Bavdek)

Earnings news is likely to be in the spotlight, with fourth-quarter results expected from Expedia Inc. (EXPE.O), Kraft Foods, PepsiCo Sprint Nextel Corp. and Goodyear Tire & Rubber.

After the market close on Wednesday network equipment maker Cisco Systems Inc's (CSCO.O) shares sank 9.3 percent in extended trading after CEO John Chambers warned of dwindling public spending and weaker margins from tough competition.

After the bell Whole Foods Market Inc (WFMI.O) surged 8.1 percent to $58.11 after it raised its full-year profit view reported and quarterly earnings that topped expectations.

Looking at economic news, investors will watch the U.S. weekly jobless claims at 1330 GMT, with economists in a Reuters survey forecasting a total of 410,000 new filings compared with 415,000 in the prior week.

At 1500 GMT is the release of U.S. Wholesale Inventories for December, with economists in a Reuters survey forecast inventories to rise 0.7 percent versus a November decrease of 0.2 percent.

The Wall Street Journal reported that Google Inc (GOOG.O) and Facebook Inc, plus others, have held low level takeover talks with Twitter that give the Internet sensation a value as high as $10 billion.

According to two people familiar with the matter, wireless operator Clearwire Corp (CLWR.O) is planning on shifting its sales strategy toward wholesale clients away from retail consumer services.

On Thursday Republican lawmakers at a hearing plan to scrutinize new costs for manufacturers, farmers and other types of "end user" businesses that use derivatives to hedge their risks. The upcoming regulation on capital and margin requirements is a key concern.

The computer security firm McAfee Inc (MFE.N) said in a report hackers working in China broke into the computer systems of five multinational oil and gas companies to steal bidding plans and other critical proprietary information.

On Wednesday, investors took profits after a recent rise in U.S. stocks, but a late-hour rally in Bank of America shares helped the Dow squeeze out its eighth straight day of gains.

European stocks fell 0.9 percent hit by weaker-than-expected earnings news from Swiss bank Credit Suisse (CSGN.VX), Danish banking group Danske (DANSKE.CO) and Diageo (DGE.L), the world's biggest spirits group.

(Reporting by Joanne Frearson; Editing by Hans Peters)

Deutsche and NYSE said they are in advanced talks to form a marketplace that would have annual trading volume exceeding $20 trillion, the latest in a flurry of mergers pointing to a shake-up of an industry under intense cost pressure from upstart electronic rivals.

"Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China," Hong Kong Exchanges and Clearing Ltd said on Thursday. It had not identified any opportunities, it added.

News Deutsche Boerse could be close to buying NYSE Euronext came shortly after the London Stock Exchange announced a bid for Canada's TMX.

The merger activity spurred a near 5 percent rally in shares of Australia's ASX, which is trying to overcome domestic opposition to a $7.9 billion takeover bid from the Singapore Exchange.

In contrast, HKEx shares slumped on worries a round of mergers would intensify competition for the exchange, whose markets generate $1.5 trillion in trading volume. The shares closed down 4.9 percent, the most since May 2009, on the highest trading volume since late 2008, Reuters data shows.

HKEx, which has a market capitalization of around $24.4 billion, has so far felt no need to merge. Its position as a gateway to China for international investors and its strong pipeline of China-backed IPOs has kept business booming.

Other exchanges in Asia have been reluctant to seek tie ups due to tight ownership, while regulations in some markets, such as India and China, prevent significant foreign involvement.

"The competitive threat from alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better," said Neo Chiu Yen, vice president for equity research at ABN AMRO Private Bank.

The Tokyo Stock Exchange indicated no interest in seeking a merger.

REVIVAL

SGX's bid for ASX faces major political and regulatory hurdles in Australia, but the Singapore exchange said the merger talks announced in recent days supported its case.

"The latest developments underscore the rationale for exchange consolidation and the merits of an enlarged group," Chief Executive Magnus Bocker said in a statement.

In fact, the flurry of merger activity might help boost support for the Singapore-Australia tie up, said Magdalene Choong, an analyst at Phillip Securities.

"Having seen so many mergers in the global market recently, Australia may better accept the prospect of being part of a larger group and it's paved the way for Australians to accept the reality of today's world," Choong, who has a "buy" rating on SGX, said.

The size of the buyback and the target for completing it by 2012 was not good enough for some investors, who were hoping for more cash up front and sent Rio's shares 1 percent lower in early London trade.

"The fact that (the buyback's) long-dated might disappoint some investors," said Lyndon Fagan, resources analyst at RBS in Sydney.

After whittling down a $40 billion mountain of debt the no.3 global miner by market value said it was in strong shape to take advantage of any other opportunities that might arise, even after returning cash to shareholders.

Burned by its top-of-the-market takeover of Alcan in 2007, Rio has said it is only looking for acquisitions worth less than about $5 billion. Investors were upbeat on the results, which were in line with forecasts.

"I was pleasantly surprised by the share buyback. It was definitely in the top end of what I thought they would do. It was a good result," said Brendan James, portfolio manager at Perennial Growth.

Rio's move will raise expectations that top global miner BHP Billiton, with its nearly debt free balance sheet, will step up its dividend payout and add to its ongoing $4.2 billion share buyback when it reports results on February 16.

Smaller rival Xstrata set the pace earlier this week topping forecasts with an 86 percent jump in full-year profit and a dividend that was nearly double market expectations.

Rio and its peers are all flush with cash, producing at full steam with copper prices at record highs, spot iron ore prices up nearly 50 percent from a year ago, and thermal coal prices up nearly 40 percent.

Chief Executive Tom Albanese said economic growth in emerging markets combined with supply constraints meant the market and pricing outlook for commodities remained positive, but warned that the risks were "elevated."

"In particular, the timing and speed at which post-global financial crisis stimulus packages are removed have the potential to generate both volatility and substantial swings in commodity prices," he told reporters.

Rio plans to further invest in its expansion projects, after approving $12 billion worth of work in 2010. "Our business is back doing what it does best and performing exceedingly well," Albanese said.

Underlying earnings before one-offs rose to $8.22 billion for the six months to December, based on Reuters calculations, from $3.73 billion a year earlier and against analysts' forecasts of around $8.29 billion.

The company stepped up its dividend to 108 cents a share for the year, up from 45 cents a share a year ago. Analysts had said anything more than 100 cents a share would be a big surprise.

"That by itself reflects the confidence that we've got going forward that we can maintain that dividend, because it's a progressive dividend," Rio's Chief Financial Officer Guy Elliott told reporters.