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Japan's No.3 automaker this month forecast a worse-than-expected 65 percent fall in annual operating profit to 200 billion yen ($2.5 billion) for the year to March 2012. Many analysts consider its guidance overly conservative, with consensus forecasts putting the profit at 412 billion yen, according to Thomson Reuters I/B/E/S.

"I don't think assuming 80 yen to the dollar is conservative at all," Fumihiko Ike told a small group of reporters in an interview, explaining the expected sharp drop in earnings.

"The same goes for raw material prices."

Ike said potential shortages of electricity in Japan following the nuclear disaster caused by the March 11 earthquake and tsunami likely meant resources-poor Japan would need to step up its imports of natural gas and other energy sources.

"And for that, a stronger yen is better," Ike said. "We in the manufacturing sector may cry out for relief but...I suspect such forces may be at work."

Honda's assumption that a rise in raw material prices would have a negative impact of 80 billion yen on profits this year was also not excessive, he said.

"Before, it used to be about rising precious metals prices. Now, on top of that, we're dealing with an incredible surge in rare earth prices as hybrid cars become more popular," he said.

Precious metals such as platinum are used in catalytic converters needed to reduce tailpipe emissions, while rare earth elements such as dysprosium and neodium are needed for electric motors fitted in fuel-efficient hybrid cars.

Rare earth prices have been soaring since China, which controls more than 95 percent of global supply, restricted exports late last year. The China offer price of dysprosium now hovers around $3,600-$3,800 a kg, up from $300 a year ago, and neodium is traded above $450, up from $45.

Honda's cost and sales assumptions translate into a cost increase of around 24,000 yen per car this year. Honda is expecting a 6 percent drop in its global car sales to 3.3 million vehicles.

ACURA DRIVE

Honda's 200 billion yen profit forecast would yield an operating margin of 2.4 percent, less than half of rival Nissan Motor Co's (7201.T) projection of 4.9 percent for 2011/12.

Nissan on Monday mapped out a business plan to boost that margin to a sustainable 8 percent within six years, partly fueled by a global expansion of the Infiniti luxury brand.

Ike said Honda was also preparing a big model offensive for its premium Acura brand, which sells about the same number of cars as Infiniti, or around 160,000 a year.

"We've got quite a number of new models in the pipeline," Ike said, declining to provide details. He added, however, that unlike Nissan, Honda had no plans to spread the brand into more markets. Honda sells Acura cars in North America and China.

Honda's shares rose 1.2 percent to 3,055 yen in morning trade in Tokyo, roughly in line with the benchmark Nikkei average .N225.

(Additional reporting by Yuko Inoue)

When adjusted for inflation, spending slipped 0.1 percent in May, the Commerce Department said, falling for a second straight month.

The flat reading in consumer spending came after 10 straight months of gains and suggested that consumer spending, which has been hampered by high gasoline prices, in the second quarter will be much slower than the 2.2 percent annual rate recorded in the first three months of the year.

Consumer spending, which accounts for 70 percent of U.S. economic activity, rose 0.3 percent in April and economists had expected a gain of 0.1 percent last month.

""We will be trimming the consumption number for the second quarter and GDP for the second quarter. That's worth a couple of tenths of a point," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.

While the report fits in with other data illustrating the loss of momentum in the economy, falling gasoline prices should lift spending and therefore growth in the third quarter.

Gasoline prices have dropped significantly from their peak of $4.02 a gallon in early May.

"It was a little bit of a blow to consumers from the higher energy prices and the supply chain issues. We'll see a nice rebound in third-quarter GDP on the back of full production in the auto industry," said Stanley.

U.S. Treasury debt prices pared some losses on the data, while stock index futures were little changed.

Spending on durable goods fell 1.5 percent after being flat in April.

Spending last month was probably held back by a sharp drop in motor vehicle purchases as disruptions to auto production due to a shortage of parts in the aftermath of Japan's March earthquake and tsunami left some models out of stock.

Motor vehicle sales in May set their lowest rate since September.

But there are signs disruptions to auto production are easing. The Chicago Federal Reserve's Midwest manufacturing index rose to 84.0 in May from 83.6 in April, partly reflecting a bounce back in autos.

Despite retreating gasoline prices, underlying inflation pressures continue to percolate.

The personal consumption expenditures price (PCE) index rose 0.2 percent after rising 0.3 percent in April. Compared to May last year, the index was up 2.5 percent, the largest rise since January 2010, after increasing 2.2 percent in April.

The core PCE index -- excluding food and energy -- increased 0.3 percent, the largest increase since October 2009, after rising 0.2 percent the prior month.

The core index, which is closely watched by Federal Reserve officials, increased 1.2 percent in the 12 months through May, the biggest increase since August. The index rose 1.1 percent year-on-year in April and the Fed would like to see it close to 2 percent.

Incomes rose 0.3 percent last month, slightly below expectations for a 0.4 percent increase. Incomes gained 0.3 percent in April.

Disposable incomes adjusted for inflation edged up 0.1 percent, while savings rose to an annual rate of $591.1 billion from $568.0 billion in April.

(Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

With financial markets watching the Greek crisis anxiously, Sarkozy told a news conference in Paris that the French authorities had reached an agreement with the banks on a voluntary rollover of maturing bonds.

"We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive," he said.

Banking sources confirmed that was part of an outline deal under which banks would reinvest 70 percent of the proceeds when Greek bonds fall due. Of that amount, 50 percent would go into the new 30-year bonds and 20 percent would be reinvested in a zero-coupon guaranteed fund based on high-quality securities.

European Union officials were discussing the French idea with international bankers and the Institute of International Finance (IIF) in Rome on Monday, euro zone sources said, and German banks voiced interest in the "French model.

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatizations.

Greek Finance Minister Evangelos Venizelos met ruling socialist party (PASOK) rebels in Athens to push them to toe the line in parliamentary votes on Wednesday and Thursday, where a defeat could plunge the country into default.

Greece's conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state selloffs.

However with Greece stuck in deep recession, at least three PASOK deputies have expressed serious reservations or outright opposition to a plan they say will crush any hope of growth for years to come and it is unclear how the numbers will play out.

Without parliamentary approval for the measures, which have caused a wave of strikes and demonstrations, the European Union and International Monetary Fund say they will not release the fifth tranche of the 110 billion-euro bailout agreed last year.

If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.

PREPARATIONS

Venizelos was due to meet wavering deputies throughout Monday in a last-ditch bid to ensure the votes pass after German ministers warned that Europe had to make plans for the event of a defeat which would block the next tranche of aid.

"(Rejection) isn't Plan A, or the most likely outcome but the euro zone and its financial sectors need to make preparations," Deputy Finance Minister Joerg Asmussen told a conference on Monday.

In a sign of growing nervousness on financial markets, the premium investors demand to hold Greek debt rather than benchmark German bonds widened by 20 basis points on Monday to 1,432 basis points.

The debate in parliament is due to begin on Monday evening with an initial vote on the framework austerity package due on Wednesday, and lawmakers then voting on Thursday on a separate bill containing specific steps to implement it.

Defections over the past 13 months have cut Papandreou's support in the 300-member parliament to 155 seats, meaning a handful of votes could decide the issue, which may be further complicated if one bill passes and the other does not.

In an interview with Spanish daily El Mundo on Sunday, Deputy Prime Minister Theodore Pangalos said he believed the first vote would pass but he was less confident about the second implementation bill.

"That's where we may have problems," he said. "I don't know whether some of our legislators will vote against it."

BAILOUT INSUFFICIENT

With the current 110 billion bailout insufficient to keep Greece going, European leaders are working on a further package of a similar size including a contribution from private banks which would agree to a "voluntary" rollover of their Greek debt.

Whether such a deal will be enough to stave off problems in the longer term remains uncertain. Many investors and economists believe that even if the austerity package is passed this week, it will merely delay an inevitable restructuring or default.

With the fate of both the existing aid plan and the new package dependent on this week's vote, major rallies are planned by the protestors who have been occupying Syntagma Square outside the Greek parliament in Athens for the past month.

Public anger has been fueled by Greece's worst recession since the 1970s, a youth unemployment rate of more than 40 percent and public finances that have been shattered by a debt equivalent to some 150 percent of gross domestic product.

The powerful public sector union ADEDY and its private sector equivalent GSEE are due to hold a 48-hour strike on June 28 and 29, that will hit public transport, telecoms, the post office and many hospitals.

Many companies, including the main electricity group PPC which is slated for partial privatization next year, have already started rolling stoppages.

On Monday, protestors hung a huge banner off the Acropolis, the ancient rock outcrop which dominates Athens, proclaiming: "People have the power, they never surrender."

(Writing by James Mackenzie, editing by Paul Taylor)

* Some caution, however, was expected to prevail as Greece's parliament begins on Monday to debate a deeply unpopular austerity plan which the European Union and International Monetary Fund say will need to be approved in exchange for the fifth tranche of Greece's 110 billion euros bailout program.

* A parliamentary ballot on the framework austerity package is expected on Wednesday, with lawmakers then due to vote on Thursday on a bill containing specific steps to implement it. The euro dropped to its lowest since June 16 against the dollar on uncertainty over the outcome of the vote.

* Wall Street fell for a third day on Friday on worries about the Italian banking sector and Greece's debt crisis, but the S&P 500 .SPX managed to hold its 200-day moving average in a sign buyers still see value.

* Economic data set for release on Monday include May's reading of the Chicago Fed Midwest Manufacturing, personal income and core PCE numbers, all due at 1230 GMT.

* In company news, Nike (NKE.N) reports fourth quarter numbers, with analysts expecting the firm's earnings per share (EPS) to rise to $1.16 from $1.06 a year earlier.

* Tobacco giant Philip Morris (PM.N) is threatening to sue the Australian government for possibly billions of dollars over its plan to be the first country to introduce plain, brand-less packaging for cigarettes.

* A new type of diabetes pill being developed by Bristol-Myers Squibb (BMY.N) and AstraZeneca (AZN.L) was effective in a two-year study but more bladder and breast cancers have been found in patients treated with the drug.

* Big-box retailers Wal-Mart Stores (WMT.N) and Kmart, pioneers in the push to cut consumer prices for generic drugs, have been raising prices for the most popular brand-name diabetes drugs, according to a new study.

* Citigroup Inc (C.N), the third-largest U.S. bank by assets, has told government officials that about 3,400 of the customers whose credit card information was hacked have suffered about $2.7 million in losses, the Wall Street Journal reported.

* In Europe, the pan-European FTSEurofirst 300 .FTEU3 of top shares was slightly higher in early trade, with carmakers among the top risers.

(Editing by Hans-Juergen Peters)

An informal survey by Reuters of voting countries indicated Lagarde would easily get the majority consensus needed over Mexico's central bank governor Agustin Carstens to become the next managing director of the global lender.

Carstens picked up endorsements from Canada and Australia late on Friday in a significant challenge to Europe's grip on the IMF top post, but it is unlikely to change the outcome.

The IMF's 24-strong board of member countries will hold a straw poll on Monday to determine whether either candidate has a clear majority.

The race has been one of the most hotly contested in IMF history as developing countries have aggressively pursued a process that would be based on the best qualified candidate and not based on nationality, despite Europe's large voting bloc.

The determining voice over the next two days will be the United States, which so far has been silent on who it supports. However, the Obama administration is widely expected to back Lagarde, 55, to preserve the long-standing convention with Europe that Americans will be the IMF's No. 2 official and the president of the World Bank.

Japan and China, which rank second and third behind the United States in voting influence, have also refrained from publicly supporting any candidate. However, IMF board officials said both countries are likely to vote for Lagarde.

The U.S. holds close to 17 percent of the vote. As a group European countries, including Nordic countries, hold somewhere between 40 to 47 percent of the voting sway on the board.

Countries such as Egypt, Indonesia, South Korea, Russia and French-speaking African nations early on declared their support for Lagarde, but represent marginal voting power.

LONG SHOT

The IMF job fell vacant after the sudden resignation of Dominique Strauss-Kahn, who has been charged with sexually assaulting a hotel maid in New York. He denies the charges.

Although a self-proclaimed long-shot candidate, Carstens has vigorously campaigned on his experience as a former IMF official, as well as dealing with developing world economic crises.

He has the backing of all of Latin America, with Peru and Chile endorsing him on Friday. While Brazil has been silent on whether it supports him or not, IMF board officials expect it to join the rest of the region.

Supporters of Lagarde cite her political and economic credentials throughout Europe, which is the focal point of IMF efforts to head off another global economic downturn.

Both candidates have committed to more voting power for emerging economies and even-handed advice to both advanced and developing countries.

Developing nations want their growing clout in the global economy reflected at the IMF, but have won only modest increases in voting power so far.

The continuing inability to mount a serious challenge to Europe's dominance in the IMF caused two potential contenders -- former Turkish Economy Minister Kemal Dervis and ex-South African Finance Minister Trevor Manuel -- to decide against running.

Before his downfall in May, Strauss-Kahn oversaw a shift in voting power that gave emerging markets greater say but not as much as they wanted. He named a Chinese special advisor, a step short of giving Beijing a coveted deputy managing director post.

(Editing by Alex Richardson)