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The euro zone's sovereign debt problem is also a risk to global growth. Portugal on Wednesday saw its cost for issuing two-year debt soar to its highest level since it joined the euro in 1999, rekindling fears it will need a bailout.

That kept the euro from making much headway against the dollar. The common currency last traded at $1.3913, still off highs just above $1.40 set on Monday.

In an effort to keep a lid on prices, the Bank of Korea raised interest rates for a fourth time in less than a year on Thursday. New Zealand, on the other hand, cut rates in order to bolster confidence after last month's devastating earthquake.

U.S. crude rose toward $105 a barrel, not far from a peak near $107 hit earlier this week, after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting what could be longer-term damage on the country's exporting capacity.

Brent crude gained 0.5 percent to $116.50.

"Investors are still concerned about developments in the Middle East, so oil prices during the day may decide the market's direction," said Masumi Yamamoto, a market analyst at Daiwa Securities Capital Markets.

That concern saw Japan's Nikkei average .N225 fall 1.1 percent, while stocks elsewhere in Asia .MIAPJ0000PUS shed 1.0 percent.

South Korea's KOSPI .KS11 slid 1.1 percent, Hong Kong's Hang Seng index .HSI fell 0.5 percent, while China's Shanghai Composite Index .SSEC lost 0.8 percent.

Technology stocks came under pressure after sector heavyweight Texas Instruments (TXN.N) issued a weak outlook. Samsung Electronics (005930.KS) fell 2.4 percent.

Revised data on Thursday showed Japan's economy, the world's third largest, shrank at a slightly faster annualized pace in the fourth quarter than initially reported.

But analyst expect improving exports to help the Japanese economy return to growth this year, although they warned that high oil prices threatened that outlook.

Traders said last week's hawkish comments by European Central Bank President Jean-Claude Trichet about a possible rate hike as early as next month were already discounted by markets.

"The market has already priced in a rise in euro zone rates to near 2 percent by the end of the year. But there are worries about whether the economy can cope with such high rates," said Makoto Noji, a senior strategist at Nikko Cordial Securities.

"It's also hard to think investors will try to price in even more aggressive rate hikes from now, which suggests the euro may be capped in the near term," he said.

(Additional reporting by Gertrude Chavez-Dreyfuss, Ayai Tomisawa and Hideyuki Sano in Tokyo; Editing by Nick Macfie)

Prosecution and defense lawyers painted starkly different portraits of hedge fund manager Raj Rajaratnam at the start of the biggest Wall Street insider trading case in a generation.

Rajaratnam, a Sri Lankan-born, one-time billionaire, sat impassively and wrote occasional notes on a legal pad during more than two hours of opening statements in his high-stakes trial in Manhattan federal court.

"Greed and corruption. This is a case about that man right there, Raj Rajaratnam, using stolen business information to make tens of millions of dollars," prosecutor Jonathan Streeter said, pointing at Rajaratnam and then slowly telling the jury how the government will show he cheated and tried to cover up the trail.

Defense lawyer John Dowd, mostly reading for 90 minutes from a prepared statement, offered a host of alternative reasons for Rajaratnam's alleged illegal information gathering and trades. He said "the government has it wrong" and insisted the Galleon Group founder engaged in legal stock research and analysis that made him successful.

Dowd attacked government allegations that former Goldman Sachs director Rajat Gupta tipped Rajaratnam about a $5 billion confidence-boosting investment in Goldman by Warren Buffett's Berkshire Hathaway at the height of the 2008 financial crisis and on the Wall Street bank's earnings.

"Any information that Raj received from Gupta in October 2008 was immaterial as there was a month left in the quarter," a slide shown by Dowd read. Dowd was responding to the allegation that Rajaratnam was given a tip about Goldman's earnings.

The government accuses Rajaratnam, the central figure in a vast insider trading probe that shook up hedge funds, of reaping $45 million in illegal profit between 2003 and March 2009. The U.S. Justice Department has made insider trading probes into the secretive $1.9 trillion hedge fund industry a priority, with Rajaratnam's prosecution its signature case.

The defense team faces hundreds of secretly recorded phone calls in evidence and former friends or employees who will testify for the prosecution during the two month long trial.

"SAVE THEIR SKINS"

Streeter said former Rajaratnam friends and business associates Anil Kumar, formerly of McKinsey & Co and former Intel executive Rajiv Goel would testify that they gave the fund manager company secrets. Former Galleon employee Adam Smith, who has also pleaded guilty in the case, will testify.

Dowd told jurors the witnesses agreed to testify "to save their skins."

In the wood-paneled courtroom, both lawyers stood at a podium when it was their turn to address the jury. Document boxes and files were piled in one corner, under the defense table and next to the prosecutors' desk.

Streeter said Rajaratnam obtained an illegal advantage over ordinary investors. "He exploited a corrupt network of people to obtain information" about company secrets such as earnings and mergers, the prosecutor said.

He said Rajaratnam "gets tomorrow's business news today."

But Warren Buffett is no ordinary investor, and China's BYD is no ordinary company.

At the depths of the financial crisis, Buffett put $232 million into BYD Co. Ltd., taking a 9.9 percent stake in the nascent Chinese auto business. Lest there be any doubt of the relationship, BYD showrooms are adorned with giant pictures of Buffett shaking hands with Chairman Wang Chuanfu.

More than any winning presentation at the Detroit Auto Show, more than any statistics or innovations, Buffett's imprimatur put BYD on the map, instantly making it the most serious Chinese contender among those seeking to sell an all-electric car in the U.S. market.

But diplomatic cables revealed by WikiLeaks and provided to Reuters by a third party, as well as interviews with industry consultants and executives who have examined the company's operations, raise a number of questions about the fledgling carmaker. Among other things, they describe a record of stealing designs from rivals, using those savings to undercut competitors on price and scrimping on safety.

"While BYD has certainly achieved a measure of success based on a business approach of copying and then modifying car designs just enough to convince Chinese courts that the company has not infringed on patents, it is far less certain that foreign courts will be as sympathetic," Guangzhou Consul-General Brian Goldbeck wrote in an October 30, 2009 cable that was unclassified but marked for U.S. government eyes only. It was submitted just days after BYD shares hit a new peak, driven by Buffett's backing.

BYD's questionable behavior went beyond copying designs, though. According to the consulate, the company also sold some vehicles almost at cost to boost its market share and may have advertised safety ratings for one model it did not have.

The scorching assessment of BYD by U.S. officials carried the title, "BYD seeks to 'Build Your Dreams' -- based on Someone Else's Designs." Nothing in the consulate's cable describes the motivation for the secret review of the Chinese upstart, although it notes that Buffett's bet had put BYD in the spotlight and allowed it to be seen as "one of the most promising carmakers of the future." The State Department did not respond to request for comment on the cables.

It is true that analysts view some of BYD's behavior as broadly typical of the Chinese auto industry, particularly the meticulous copying of better-known international cars. Yet analysts and industry experts in the United States say even in that context, BYD stands out, and there are questions about whether the company's much-ballyhooed -- and oft-delayed -- e6 all-electric car will ever make it to the U.S. market.

Micheal Austin, the vice president of BYD America, defended the company, its track record and the promise of its battery technology that made Buffett a believer.

He said in an email: "So where is the true technology and intellectual property? -- is it in wrapping of piece of sheet-metal around a car? or is the genius in creating a vehicle with ZERO emissions? Zero, Nada, Zip -- no noise, no smell, no smog. A vehicle that does no harm to the environment and can sell in Shenzhen China for $10,800 (after Chinese National and local incentives) -- that is genius!"

"No one can match the technology in that. Should 'they' be worried, yes. Will 'they' complain that 'Chinese' cars follow World design trends and follow design best practices? Yes," Austin said in the email.

"BYD's business and intellectual property practices in China, as well all places of the World, are compliant with local and international requirements and regulations. If there are factual complaints from (other automakers), we work hard to resolve them," he said.

Buffett did not respond to a request for comment made via his assistant, who handles his press inquiries. A spokeswoman for Buffett's MidAmerican Energy unit, which controls the investment, said "we do not speak or comment on behalf of BYD."

BAD BET?

The monthly survey of more than 250 economists from all over the world again showed the United States leading the way in terms of economic growth, with the euro zone, Britain and Japan floundering by comparison.

While there was no expectation that any of these economies would return to recession soon, respondents answering an extra question said the rising price of oil was the most obvious factor that could derail the consensus.

Oil, which rose past $114 a barrel on Wednesday, has soared in value since the start of the year as political and civil unrest spread across several major oil producers in the Middle East and Africa.

Inflation pressures have already risen steadily in most major economies as a direct result, and the poll showed a modest but broad-based upgrade to the outlook for consumer price growth.

"The key question is whether to focus on the actual data reports that confirm that the global expansion is well under way, or the odds that the combination of high oil prices and unsteady growth in some countries will derail the economy's momentum," said RBC economist Dawn Desjardins, in a research note.

"To date, the risks have only had a limited effect on investors' risk appetite, causing a hiccup in the world stock market performance and tempering the rise in global government bond yields."

Of 86 economists answering the extra question, 66 said oil prices were the biggest risk to global growth, while 15 economists picked the euro zone debt crisis and 12 cited rising food prices. Some picked more than one option.

The poll predicted the United States economy will grow 3.1 percent year-on-year in both 2011 and 2012 -- almost twice the rates of growth forecast for the euro zone and Japan.

INFLATION AT WORK

In Japan's case, growth will struggle to top 0.5 percent per quarter for the foreseeable future, although the poll suggested the rise in oil prices will prompt a sooner exit from deflation than seen even last month.

While escaping deflation is a long-held goal among Japanese policymakers, the fact it will be achieved through rising commodity prices when domestic demand remains weak offers no cause for celebration.

"If prices of daily necessities rise when wages aren't increasing, that tends to hurt spending on other goods," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Higher commodity prices could also squeeze corporate profits, especially among companies that depend on domestic demand," he said.

By contrast, European policymakers are concerned inflation has risen above target levels -- especially in Britain, where price growth is running at double the Bank of England's two percent goal.

Brent crude edged up 0.4 percent to $113.53 a barrel while U.S. oil futures shed 0.2 percent to $104.85.

Libyan forces loyal to Muammar Gaddafi surrounded rebels in the western city of Zawiyah with tanks and snipers in the main square, witnesses said.

The 12-member Organization of Petroleum Exporting Countries believes supply is adequate, according to the official, after the group held discussions about rising prices and the loss of Libyan supplies.

S&P 500 futures gained 2.6 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 33 points, and Nasdaq 100 futures climbed 3.75 point.

Texas Instruments Inc (TXN.N) issued a current-quarter earnings target slightly below estimates, blaming weaker-than-expected demand for chips used in personal computers.

Suntech Power Holdings Co Ltd (STP.N) climbed 2.8 percent to $9.25 in premarket trade a day after the world's top solar panel maker posted sharply higher quarterly earnings and reiterated its 2011 revenue and earnings outlook, which were above estimates.

HCA, the biggest U.S. for-profit hospital chain, plans to go public on Wednesday and could raise up to $3.7 billion. Analysts expect strong demand, even though its private equity owners saddled it with massive debt.

Power company Dynegy Inc (DYN.N) said late Tuesday it may be forced to seek bankruptcy protection if it can't amend or replace its existing loan facility.

In a light session for economic data, investors will watch U.S. wholesale inventories for January at 10 a.m. EST.

European stocks rose early Wednesday, though gains were limited as investors braced for Portugal's bond auction. .EU

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)

The euro fell as worries about European sovereign debt problems intensified following Moody's credit rating downgrade for Greece on Monday.

European shares were set to fall on Wednesday after gains in the previous session, with a Portuguese bond auction likely to be in focus as jitters about the euro zone sovereign debt crisis resurface.

Financial spreadbetters expected Britain's FTSE 100 .FTSE to open down 14 to 20 points, or as much as 0.3 percent, Germany's DAX .GDAXI to open 4 to 8 points lower or as much as 0.1 percent, and France's CAC-40 .FCHI to open down 6 to 8 points or as much as 0.2 percent.

Benchmark U.S. crude futures dipped to $104.25 a barrel, easing further from a 2- year high hit on Monday, after Kuwait's oil minister said the Organization of the Petroleum Exporting Countries (OPEC) was considering boosting supply to offset disruptions in Libya, where government forces are trying to quash a popular uprising.

Brent crude declined for a third day to stand at $112.34 a barrel at 0710 GMT, more than $7 below a 2- year high of almost $120 reached on February 24.

An official oil output increase by OPEC would signal the group's determination to cap prices, but unrest in the region has fueled concerns about more supplies being cut off.

"Oil has stopped rising for now, but it hasn't really retreated to levels that allow aggressive buying in risky assets, so investors will still be jittery," said Hiroichi Nishi, general manager at Nikko Cordial Securities.

Japan's Nikkei extended gains for a second day after the pullback in oil prices lifted Wall Street but investors remained worried that high fuel prices could stunt global economic growth and erode corporate earnings.

The benchmark Nikkei share average .N225 closed up 0.6 percent, while the broader Topix .TOPX gained 0.5 percent.

MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS edged up 0.1 percent, led by gains in consumer durables and financials.

The Korea Composite Stock Price Index .KS11 (KOSPI) ended up 0.3 percent, with banks surging ahead of the central bank's interest rate meeting on Thursday.

The Bank of Korea is expected to raise rates to curb price pressures after surprising markets by leaving rates unchanged in February.

EURO SLIPS

The euro fell for a third straight session against the dollar, with further pressure likely as investors remained unconvinced that a European Union summit on Friday to overhaul the euro zone economies will yield any results.

A jury of New Yorkers will hear prosecutors outlining how they believe Sri Lankan-born Rajaratnam broke the law by designing a complex web of stock tippers who helped him reap $45 million in illicit profit between 2003 and March 2009.

For the first time, the jury and observers of the high-profile case will be given an insight into the defense trial strategy, which faces seemingly overwhelming evidence of leaked corporate secrets, tapped telephones and friends-turned-government witnesses.

"The defense doesn't really get to show the whole picture until the trial and then it really can be quite different and end up with surprising results," said Stuart Gasner, securities fraud defense lawyer at Keker & Van Nest law firm in San Francisco and a former prosecutor.

The selection of a jury of 12 and six alternates began on Tuesday and is expected to be completed on Wednesday.

Presiding U.S. District Judge Richard Holwell sent prospective jurors home with a warning not to read anything about the highly-publicized case. He then told prosecutors and Rajaratnam's multimillion dollar defense team that opening statements would go ahead "for sure" on Wednesday.

Since arresting 53-year-old U.S. citizen Rajaratnam in October 2009 and announcing criminal charges against 26 former traders, executives and lawyers, the U.S. government has pressed ahead with what it calls the biggest probe of insider trading in the $1.9 trillion hedge fund industry.

Nineteen people have pleaded guilty in the Galleon case. It stands apart from past insider trading investigations because of the government's wide-scale use of phone taps. As many as 173 audio recordings will be played to the jury during the two-month long trial.

Rajaratnam was mobbed by photographers and TV crews when he walked into the courthouse on Tuesday morning and as he left at the end of the day. Dressed in a brown coat and a suit, he said nothing on both occasions.

Chief defense lawyer John Dowd has argued in court papers that prosecutors have broadened the definition of insider trading. He said a money manager's liberty should not be at risk because he trades on a stock while knowing something about the company.

The burden of proof is on prosecutors to convince the jury that their evidence shows Rajaratnam knew he was trading on confidential information provided by someone who had a fiduciary duty not to disclose it.

In the week before the trial, U.S. market regulators and prosecutors uncorked allegations against Rajaratnam's friend and former Goldman Sachs Group Inc director Rajat Gupta. They described phone calls in which he tipped Rajaratnam about confidential Goldman information before it became public.

Gupta faces a civil proceeding brought by the U.S. Securities and Exchange Commission but he has not been criminally charged. Lloyd Blankfein and David Viniar -- the Goldman Sachs chief executive and chief financial officer -- were on a list of people who might testify or be mentioned during the trial.

The case is USA v Raj Rajaratnam, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Grant McCool, editing by Andrew Marshall)