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The tough warning appeared in the overseas edition of the People's Daily, the leading newspaper of China's ruling Communist Party, indicating that political tensions between the United States and China over Internet security could linger.

Last week, Google said it had broken up an effort to steal the passwords of hundreds of Google email account holders, including U.S. government officials, Chinese human rights advocates and journalists. It said the attacks appeared to come from China.

The Chinese Foreign Ministry rejected those accusations, and the party newspaper warned Google against playing a risky political game.

By saying that Chinese human rights activists were among the targets of the hacking, Google was "deliberately pandering to negative Western perceptions of China, and strongly hinting that the hacking attacks were the work of the Chinese government," the People's Daily overseas edition, a small offshoot of the main domestic paper, said in a front-page commentary.

"Google's accusations aimed at China are spurious, have ulterior motives, and bear malign intentions," said the commentary, written by an editor at the paper.

"Google should not become overly embroiled in international political struggle, playing the role of a tool for political contention," the paper added.

"For when the international winds shift direction, it may become sacrificed to politics and will be spurned by the marketplace," it said, without specifying how Google's business could be hurt.

The latest friction with Google could bring Internet policy back to the foreground of U.S.-China relations, reprising tensions last year when the Obama administration took up Google's complaints about hacking and censorship from China.

Google partly pulled out of China after that dispute. Since then, it has lost more share to rival Baidu Inc in China's Internet market, the world's largest by user numbers with more than 450 million users.

Google last week that the hacking attacks appeared to come from Jinan, the capital of China's eastern Shandong province and home to an intelligence unit of the People's Liberation Army.

U.S. Defense Secretary Robert Gates over the weekend warned that Washington was prepared to use force against cyber-attacks it considered acts of war.

In February, overseas Chinese websites, inspired by anti-authoritarian uprisings across the Arab world, called for protests across China, raising Beijing's alarm about dissent and prompting tightened censorship of the Internet.

China already blocks major foreign social websites such as Facebook and Twitter.

(Editing by Miral Fahmy)

The International Air Transport Association, whose airlines carry more than 90 percent of global air traffic, may be forced to cut its benchmark forecast for 2011 industry profits at a major annual gathering in Singapore.

It is the latest sign of concern that the economic rebound that pulled many companies out of financial trouble in 2010 may be screeching to a halt. Such fears reflect Japan's earthquake, recent instability in the Arab world and a rise in oil prices.

IATA most recently predicted an industry-wide profit of $8.6 billion in 2011 after a $16 billion surplus in 2010 -- a year in which the economy had seemed to be recovering quickly.

Although drastic cost cuts and a tight lid on capacity appear to have prevented the industry from plunging back into the red, most analysts say the current forecasts are too optimistic.

The industry's outlook is often seen as a guide to the strength of cyclical performance in developed markets and growth in emerging economies, which rely heavily on air transport.

Airline chiefs arrived at the conference sounding off against European Union plans to curb emissions from aviation, which they say would threaten their recovery and discriminate against carriers located the farthest away from Europe.

The EU plans will require all airlines flying to Europe to be included in an Emissions Trading Scheme (ETS) from January 1.

The system forces polluters to buy permits for each metric ton of carbon dioxide they emit above a certain cap.

The plan is meant to tackle growing emissions from the $500 billion aviation industry, which is responsible for about 2 percent of mankind's greenhouse gas pollution.

Airlines say it will only increase costs and add to pressures caused by a faltering global economy.

WARNING OF TRADE CONFLICT

Governments and airlines have been piling on pressure, some describing the forced inclusion of global airlines as illegal.

"The last thing that we want to see is a trade war," said Giovanni Bisignani, director-general of the International Air Transport Association. The EU had to heed a "growing chorus of countries strongly opposing an illegal extraterritorial scheme."

European airlines and Airbus have written to the European Commission warning of a "trade conflict with the world's most powerful economic and political players," over the plans that are opposed by the United States and China.

The letter, signed by Airbus Chief Executive Tom Enders and Virgin Atlantic Chief Executive Steve Ridgway on behalf of European airlines, says the measures are perceived as a tax.

U.S. airlines are challenging the move in EU courts.

Industry and diplomatic sources say China has threatened retaliation against European airlines and planemaker Airbus if the EU goes ahead with its plans.

But Europe's climate chief insisted on Sunday the EU would stand firm against any threats of retaliation.

"When some parties start to threaten specific European companies, I think Europe should be very firm," Climate Commissioner Connie Hedegaard told Reuters in Brussels.

The EU has offered to exempt airlines of countries that can prove they are taking equivalent steps to cut emissions.

Airlines are meanwhile involved in a growing number of bilateral trade disputes over access rights as Gulf airlines seek markets for planes such as Airbus A380s that they have ordered.

(Additional reporting by Alison Leung, Harry Suhartono, Pete Harrison; Editing by Maureen Bavdek)

With weak job growth and the end of the Federal Reserve's stimulus program staring investors in the face, the 5 percent drop in the S&P 500 from last month's high is half way toward the market's definition of a correction -- a 10 percent fall from a recent peak.

The broad market index on Friday recorded its worst week since mid-August and its fifth straight week of declines.

But fund managers displayed caution rather than distress. Most see the recent data confirming a soft patch, or slowdown, after the government said the economy created a meager 54,000 jobs in May. Others say the economy may be headed for a double-dip recession.

The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities isn't in the cards yet, investors say. For the year, stocks are still positive, with the Dow up 5 percent, while the S&P 500 and the Nasdaq are each up about 3 percent.

"The markets will be choppy. They'll be looking for validation that this is just a soft patch we're going through, not the economy rolling over," said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc, which oversees about $641 billion.

Some concede the stock market could see further declines from sovereign debt problems in Europe or a spillover of violence in Yemen into Saudi Arabia, which could lift oil prices, hurting the consumer.

The lack of market-moving economic data or corporate earnings this week could also make nervous investors hit the sell button more often than not. But the market mantra of "buying the dip," which has worked since the Fed started round two of its quantitative easing in August could prevail.

"Is another 5 percent (decline) possible here? I don't see why it wouldn't be, given the risk of contagion in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

"The market is constantly reconciling the fact that it's a slow recovery. We had a painful crash and a crisis and we are painfully, gradually getting out it. This pullback, and potentially further pullbacks from here in the next couple of months -- I view these as attractive entry points for longer-term investors."

Data that showed net inflows into global equity funds could confirm investors are not ready to throw in the towel.

Equity funds tracked by EPFR Global saw inflows of $1.7 billion in the week ending last Wednesday, distributed evenly between developed and emerging markets. The data comes after three weeks of outflows totaling $18 billion. Bond funds took in some $3.5 billion in net inflows, a sixteenth straight week of inflows.

From a technical standpoint the U.S. stock market showed some resilience also, despite the dismal jobs data.

The S&P 500 on Friday managed to close just above 1,300, keeping the April low just under 1,295 as strong near-term support.

To be sure, not all investors see just a soft patch in the economic data. Friday's payrolls report confirmed the loss of momentum in the economy, which was already flagged by other data from consumer spending to manufacturing.

And the end of the Fed's QE2, which helped lift the S&P 500 30 percent in the eight months to the end of April, is robbing the market of a much-needed source of liquidity.

"We'll see a sell-off in the risk-on trades, in commodities and in global and U.S. stocks and the money is going short-term into the bond market," said Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, California.

"I just don't see where the money is coming from to take stocks higher if the government is not going to be providing it."

(Reporting by Rodrigo Campos; additional reporting by Caroline Valetkevitch, Lucia Mutikani and Ryan Vlastelica; Editing by Kenneth Barry)

The cabinet will Monday hold an informal discussion of the medium-term plan, the office of Socialist Prime Minister George Papandreou said Sunday.

Papandreou would then present the plan, which also promises a new privatization agency to speed up sales of state assets, to the political council of his PASOK party Tuesday before the cabinet clears on it Wednesday and sends it to parliament.

Interior Minister Yannis Ragousis has warned doubters within the ruling party that they risk pushing Greece over a cliff if they resist attempts to get the plan, agreed Friday with the European Union and IMF, through parliament.

Few details of the new three-year bailout or the Athens government's medium-term plan have yet been officially announced. But the unhappiness is likely to spill well beyond Greece's borders as taxpayers elsewhere in the euro zone begin to discover how much more rescuing Athens may cost.

German news magazine Der Spiegel reported Sunday the new package could end up costing more than 100 billion euros, if Athens still needs foreign aid in 2013 and 2014.

Spiegel cited estimates by experts from the German Finance Ministry and the "troika" of the EU, International Monetary Fund and European Central Bank. In Berlin, the finance ministry declined to comment on the weekly's report.

Greece agreed its first, 110 billion-euro bailout a year ago. But this assumed that Athens could resume borrowing commercially early next year, which now appears inconceivable. Athens is struggling to avoid defaulting on its existing debt and yields on its bonds are sky-high in the secondary market.

So far, Athens has received 43 billion euros under the first bailout, although it urgently needs another 12 billion which had been due in late June to cover debt repayments and for its day-to-day running costs. The troika said Friday that money should now be forthcoming in July.

GREEK EFFORTS "INSUFFICIENT"

Euro zone finance ministers and the IMF board must still back the new bailout, which would supersede last May's rescue.

Greece's commercial creditors are likely to be unhappy with the latest bailout plan, which is expected to demand that they share some of the cost of Greece's huge funding needs.

A source close to negotiations on the bailout involving EU officials in Vienna last Thursday said it would involve some participation of private investors.

Spiegel also reported that German Finance Minister Wolfgang Schaeuble had ordered his deputy Joerg Asmussen not to agree to any second rescue package at the Vienna talks that does not include the participation of private creditors.

Public opinion in Germany is hostile to helping Greece due to Athens's failure to get to grip with its finances, and electorates in Finland and the Netherlands are also restive.

"Greece is trying, but its efforts are insufficient," said Volker Kauder, an ally of German Chancellor Angela Merkel.

Kauder, who leads her Christian Democrat party in parliament, dismissed nightly protests in Athens against austerity, corruption and mismanagement.

"We can't let ourselves be influenced by the demonstrations in Greece," she told Bild newspaper. "It's time that Greece finally becomes a state with central European standards."

The European Central Bank opposes any attempt to cut the overall value of creditors' bond holdings, known as a haircut, fearing this would badly hurt banks which hold Greek debt and provoke a violent reaction on international financial markets.

However, creditors may be asked to buy new Greek bonds when old ones mature, to avoid Athens having to produce more money.

Nevertheless, a Greek newspaper said Sunday the central bank planned to ask the country's banks, which have major Greek government bond holdings, to boost their capital adequacy.

This was aimed at easing market fears over the impact of any haircut, newspaper Kathimerini said, citing banking sources.

"This does not mean that the Bank of Greece accepts there will be a haircut. On the contrary, as a member of the European Central Bank it is against any type of debt restructuring," Kathimerini said.

(Additional reporting by Erik Kirschbaum in Berlin; writing by David Stamp; editing by Andrew Roche)