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Time Warner could announce the deal as soon as Monday morning, the source said.

Insight is the 10th-largest cable operator in the United States, Carlyle's website says. It sells cable television, high-speed Internet and telephone services, serving around 750,000 customers in Illinois, Indiana, Kentucky and Ohio.

Insight representatives approached Time Warner in recent weeks to discuss a deal after failing to reach agreement with other strategic and private equity bidders, the source said.

TWC had dropped out of an auction for Insight earlier this year, because the company believed Carlyle was asking for too much, a source told Reuters in May. Carlyle had originally been looking for around $4 billion, sources said then.

Executives at Time Warner Cable have regularly said that any acquisition targets would not be valued at a higher multiple than its own stock.

This is Time Warner Cable's largest acquisition since it was spun off from former parent Time Warner Inc in 2009. Earlier this year it paid $260 million for NewWave Communications, a small cable operator with cable systems also in the Midwest.

The deal could enable Time Warner Cable to reap programing cost savings, tax benefits as well as other operating synergies. Insight owns cable systems that are contiguous to Time Warner Cable's in the Midwest United States including states of Ohio, Kentucky and Indiana.

Time Warner and Carlyle declined to comment. Insight could not be immediately reached for comment.

Shares of Time Warner Cable closed at $65.51 on Friday.

(Reporting by Yinka Adegoke, Writing by Michael Erman; Editing by Dale Hudson and Muralikumar Anantharaman)

With the blow from the August 5 U.S. credit rating downgrade behind them, investors will focus on the outlook for the U.S. economy as well as signs that European policymakers may be able to contain the euro zone debt crisis.

Widespread investor panic put the market on a roller-coaster ride last week, with steep losses followed by nearly-as-steep gains in high-volume trading. It was the busiest week for volume since October 2008.

Though investors are still searching for a bottom in the selloff that has taken the benchmark Standard & Poor's index down 12.4 percent since July 22, indexes rose both Thursday and Friday -- the S&P index's first two-day rally since mid-July -- and volatility eased.

The move could set stocks up for a calmer week, especially if economic data shows the United States is not headed for another recession, strategists said.

"Every bit of data that shows the economy not slipping into recession is going to be the basis for the market to begin to calm down in the weeks ahead," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

While Wall Street stocks ended higher on Friday, the market fell for the week. The Dow fell 1.5 percent and the Nasdaq lost 1 percent. The S&P 500 fell on 11 of the past 15 days, dropping 12.4 percent in three weeks.

Housing and manufacturing reports are among indicators on tap, including the New York and Philadelphia Federal Reserve regional manufacturing surveys and existing home sales.

Manufacturing has been among the strongest sectors of the economy, but a report earlier this month dented that picture.

The Institute for Supply Management manufacturing report, a gauge of factory activity, fell to in July to its lowest in two years and was barely above the mark dividing growth and contraction.

It was quickly followed by an ISM report showing the pace of growth in the U.S. services sector ticked down unexpectedly.

More recent data has suggested the economic recovery will stay on course.

U.S. Commerce Department data on Friday showed retail sales posted the biggest gains in four months in July, which was a catalyst for stocks to rise.

"We think the deterioration in the U.S. macro outlook got us into this mess and will likely get us back out," said Barry Knapp, head of US equity portfolio strategy at Barclays Capital in New York.

"If we're right ... we will get the stock market to trade at least back into its old 1,250 to 1,350 range that prevailed from March through the recent downturn."

Retail earnings were among the few bright spots in the market last week. Kohl's Corp reported earnings that beat estimates and raised its full-year profit view.

Results from more top retailers are expected this week, including Wal-Mart Stores, due to report on Tuesday.

"I will be looking for any data that show what back-to-school (sales) might look like, and later, into the fall, we'll be looking for what the holiday season might look like," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

Earnings growth for the second quarter is expected to have risen 11.8 percent, according to Thomson Reuters data, and many analysts consider the solid growth to remain a cushion for stocks going forward.

The S&P 500's price-to-earnings ratio is at 10.46, according to Thomson Reuters data, considered cheap by historical standards.

That valuations are cheap suggests to some strategists that stocks remain attractive, especially when compared with U.S. Treasuries, but others say earnings expectations are likely to deteriorate going forward.

Besides concerns about the U.S. economic outlook, worries about the European debt crisis persist.

Investors look forward to a meeting this week between French President Nicolas Sarkozy and German Chancellor Angela Merkel, who are expected to discuss how to make the euro zone work more effectively in dealing with the crisis.

TECHNICAL DAMAGE

Technically, the market remains weak.

"Most technicians would agree that the long-term market cycle has been damaged, given two-year uptrends have been broken, monthly momentum indicators have turned down, and a lengthy list of stocks have collapsed through important long-term support levels on expanding volume," analysts at RBC Capital Markets said in a research note Friday.

Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said one sign the market's downturn may not be over is a measure of stocks with 52-week highs versus 52-week lows, which is low.

(Reporting by Caroline Valetkevitch; editing by Kenneth Barry)

President Giorgio Napolitano on Saturday signed the emergency decree introducing sweeping austerity measures to cut the fiscal deficit by some 45.5 billion euros ($64.7 billion) and balance the budget in 2013, a year ahead of its previous schedule.

"A missed opportunity," was the comment by the chief economist of the Paris-based Organization for Economic Co-operation and Development, Pier Carlo Padoan, in daily La Stampa on Sunday.

Padoan said the plan was positive in the pledge to bring forward the balanced budget but it lacked measures to boost growth and tackle tax evasion. Employers' lobby Confindustria estimates Italy's tax evasion totals 120 billion euros.

CGIL union confederation leader Susanna Camusso told la Repubblica the package "hits only those who already pay their taxes," adding that the date of a general strike would be decided at an emergency union meeting on August 23.

The austerity plan sets a "solidarity tax" on those earning more than 90,000 euros per year, to be levied for three years.

Economists, unionists and business leaders agreed a tax on wealth rather than on labor income would have been better because it would have targeted tax evaders who do not declare their real income but often own large assets.

Ferrari Chairman Luca Cordero di Montezemolo told Corriere della Sera newspaper the solidarity tax was "a scandal."

"It's one thing to ask for a solidarity contribution from me or (media tycoon and Prime Minister Silvio) Berlusconi, but it's different to hit an executive supporting his family," he said.

Newspaper editorial comment was largely negative, with former European Commissioner Mario Monti telling Corriere della Sera the package lacked fairness, weighed too heavily on the middle classes and did too little to help growth.

TAX BURDEN

In an interview with business daily Il Sole 24 Ore Confindustria head Emma Marcegaglia said the new tax regime could force managers to seek employment abroad, adding to Italy's hemorrhage of talented workers.

"We are reaching an absolutely disproportionate tax rate on so-called high incomes," Marcegalia said.

She also called the so-called 'Robin Hood Tax', due to hit companies in the energy sector with more than 10 million euros in revenues and 1 million euro in taxable income, a "folly."

Marcegaglia called for an increase in value added tax and a reform of the system allowing early retirement on the basis of years of pension contributions. Pension spending in Italy is around two percentage points above the euro zone average.

The austerity decree must be passed by parliament within 60 days, during which it will almost certainly be amended. Debate will begin in the Senate on August 22.

Some 4 billion euros of the 20 billion euros of savings slated for 2012 and 12 billion euros of the 25.5 billion set for 2013 are to come through tax and welfare measures still to be drawn up.

French economist Jean-Paul Fitoussi told Rome daily Il Messaggero that market pressure had forced Italy to take steps which were of no real value and would damage its weak growth.

"Italy is like the protagonist of a Greek tragedy: forced to do things that will be useless and damaging in the long run, but necessary for survival in the short run."

($1=0.703 Euros)

(Editing by Mike Nesbit)