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U.S. banks have been looking for ways to increase revenue as regulations introduced since the financial crisis limited the use of overdraft and other fees.

The Dodd-Frank Act's Durbin amendment, due to go into effect on October 1, caps fees banks can charge merchants for processing debit card transactions at 21 cents per transaction from an average of 44 cents, potentially costing banks billions of dollars.

Banks also face broader operational challenges as low interest rates and higher capital requirements hit profitability, and the sluggish economy depresses loan demand.

Other large U.S. banks including Wells Fargo & Co, JPMorgan Chase & Co and SunTrust Banks Inc are testing or planning monthly debit card fees.

"The economics of offering a debit card have changed," Bank of America spokeswoman Anne Pace said on Thursday. Bank of America is the largest U.S. bank by assets.

Senator Richard Durbin, architect of debit card interchange fee reform, bashed the proposed monthly fee. "Bank of America is trying to find new ways to pad their profits by sticking it to its customers," he said in a statement. It's overt, unfair, and I hope their customers have the final say."

A FEE TOO FAR?

Even before introduction of the Durbin amendment's rules on debit fees, Bank of America's fee income was dropping at its deposits and card services units. The bank's deposits unit reported fee income of $1 billion in the second quarter of 2011, down 34 percent from $1.5 billion a year before.

Card services, which includes the bank's credit and debit card operations, reported fee income of $1.9 billion, down 23 percent from $2.5 billion in second quarter 2010.

"This might be a fee too far," said Ed Mierzwinski, director of the consumer program for the U.S. PIRG, a federation of state public interest research groups.

Mierzwinski said such fees could push customers to smaller banks that have not introduced checking and debit-related fees.

Pace said customers expect certain features for their accounts, like overdraft and fraud protection, and the fee would offset some of those costs.

The fee will be waived for the bank's premium or platinum privileges accounts tied to its Merrill Lynch brokerage. It will also not be charged for using the card to access the bank's ATMs, Pace said.

She declined to say how much the bank expects to earn through these fees or how many customers would be affected.

Some banks have pushed back against debit fees.

Citigroup Inc said earlier this month that it would not impose debit card usage fees as part of a broader account restructuring.

The head of banking products for Citi's U.S. consumer bank said customers had told the bank that a debit card fee would be "a huge source of irritation."

(Reporting by Joe Rauch in Charlotte, North Carolina, editing by Gerald E. McCormick)

As the curtains come down on the September quarter, the worst for equities since the final quarter of 2008, investors are nursing their losses across all asset classes with traders eager to take profits to spruce up battered portfolios.

In early Asian trade, stocks in Japan and Australia edged higher while Seoul was broadly unchanged.

MSCI's broadest index of Asia Pacific shares outside Japan was flat after rising for three consecutive days. For the month, it is down around 13 percent, its biggest monthly drop since October 2008.

Even a rare batch of strong economic data from the U.S. failed to cheer sentiment in Asia with traders focusing on China's September PMI data to gauge how the world's export powerhouse is holding up in the face of a slowing global economy.

Key indices in the U.S. closed between 0.8 to 1.3 percent higher with U.S. stock futures in Asia holding on to overnight gains.

In currencies, the euro hovered above a eight-month low versus the dollar after German Chancellor Angela Merkel's coalition party voted on Thursday to enhance the European Financial Stability Facility's powers.

Having worked through to $1.3679 at one stage, the single currency settled back at $1.3585 with investors worried about the many problems ahead for the euro zone.

"There is still a lot of uncertainty... Economic growth in Europe and the U.S. is not that good and that will put pressure on the euro and give a bid to the dollar," said Joseph Capurso, strategist at Commonwealth Bank of Australia.

Worried investors gave the thumbs up to safe-haven bets like gold and Treasuries with the former extending gains slightly to hold $1,622 per ounce.

U.S. crude futures rose more than $1 to as high as $83.17 a barrel in electronic trade on Friday, extending Thursday's gains.

(Additional reporting by Cecile Lefort in Sydney; Editing by Daniel Magnowski)

Bond investors are taking the Fed chairman at his word. If things get worse, some predict the central bank will go beyond targeting interest rates and move straight to outright buying of mortgage securities, municipal debt and even stocks.

"When I think of the Fed I think everything is on the table until it isn't," said Eric Green, chief economist and head of interest rate strategy at TD Securities in New York.

If the economy appears on the verge of deflation, the Fed will "have to go very big and be very creative, and that means munis are on the table, mortgage-backed securities, corporate (bonds), equities," he said. "Everything is possible because the Fed has broken new ground and they will continue to do so if they feel they have to, exit strategy be damned."

The Fed has pushed short-term interest rates to record lows and last week announced it would attempt to push down long-term rates by selling $400 billion of short-dated Treasuries to buy an equal amount of debt with maturities of seven years and up, in a policy dubbed "Operation Twist."

This was designed to help the housing market by lowering long-term borrowing costs. It would also encourage investors to sell Treasuries for higher-yielding assets, which should boost stocks and corporate profits, encourage hiring and investment and provide a jolt to consumer sentiment and prices.

THEORY AND REALITY

That, at least, is the theory.

But fear that the economy may already be in recession has been pushing down stocks, commodities and Treasury yields for several months. U.S. stocks .SPX are more than 10 percent weaker since the start of August.

As a result, market expectations for U.S. inflation have retreated to levels last seen in September 2010, shortly before the Fed began a $600 billion bond buying program, the second installment of a policy known as quantitative easing, or QE.

When asked about this after a speech on Thursday, Bernanke said, "if inflation falls too low or inflation expectations fall too low, that would be something we would have to respond to because we do not want deflation.

The expected rate of inflation over the next 10 years as measured by the gap between Treasury inflation-protected securities (TIPS) and cash government bonds fell as low as 1.70 percent last week. At 1.83 percent on Thursday, it was still below the Fed's unofficial inflation target around 2 percent.

St. Louis Fed President James Bullard chimed in on Thursday, saying he was troubled by the decline in market inflation expectations. But he added that deflation was not yet a risk and that the bar to more Fed easing remained high.

That could change, though.

"If inflation stays very low, that's going to create a clear path for more forms of unconventional easing," said Jim Caron, head of interest rate strategy at Morgan Stanley. "I don't know how much the market is paying attention to that. But I wouldn't count anything out."

TREASURY ALTERNATIVES

With interest rates already at record lows, Caron said a QE3 would likely target assets other than Treasuries.

Mortgage debt is one candidate, and because the market is not as liquid as the government bond market, the Fed might have more success pushing investors into riskier assets.

During QE2, households, one of the largest groups of Treasuries buyers, simply increased investments in other low-risk debt such as agencies, municipal and corporate bonds when the Fed started buying Treasuries.

"The point would be to force (investors) into other risk assets knowing that the Bernanke put is no longer imagined, it's actually in place," Green said. "If the Fed is buying equities, it wants to create more favorable conditions, which means stronger risk assets, tighter credit spreads and lower rates."

MISLEADING SIGNALS?

Even as the risks rise, the Fed will have to tread carefully. Data showed core consumer prices, which remove energy and food costs, rose at a 2 percent rate in the 12 months to September, near the top of the Fed's comfort zone.

That seems to clash with signals from the TIPS market, but some say those signals may be misleading.

Philadelphia Fed President Charles Plosser, one of three central bank officials to vote against Operation Twist, said Thursday that Europe's debt crisis has increased the safe-haven appeal of U.S. government debt, with falling yields narrowing the spread between cash bonds and TIPS.

"One of the driving factors that led the Fed to embark on QE2 was indeed concern about deflation risk," said Michael Pond, Treasury and inflation-linked strategist at Barclay's Capital.

But this time, he added, "if the Fed only looks (at TIPS), they would likely be misguided here in thinking the market is pricing in disinflation."

(Editing by Burton Frierson and Dan Grebler)

"There are some statutory challenges in the law, and some disclosure-related challenges that are unique to credit-rating agencies that can make the cases more challenging," SEC Enforcement Director Robert Khuzami told Reuters in an interview on Tuesday.

"But, we don't let that stop us from investigating possible misconduct," Khuzami added. "We are looking hard at them."

Khuzami declined to comment specifically on S&P. S&P's parent, the McGraw-Hill Cos Inc, disclosed on Monday that it may become the first major credit-rating company to be sued by the SEC for its grading of complex structured products during the financial crisis.

Khuzami's descriptions of the challenges he faces come as financial and legal experts puzzle over why the SEC has taken a step against only S&P when Moody's Investors Service and Fimalac SA's Fitch Ratings also gave the same bonds their highest grades just months before they were marked down to junk.

"I just don't get why S&P is being singled out here," said Janet Tavakoli, a structured finance consultant. "I don't see much difference between the ratings from the three agencies."

Khuzami said there can be many reasons why law enforcers go after one firm and not another.

Without commenting specifically on the S&P matter, he said that "different actors might analyze a product in different ways, or one may know things that another does not."

It can also just be a simple issue of timing, he said, noting that cases against "similarly-situated parties" do not always move at the same pace.

"It is the painstaking job to build cases involving complex transactions or products," he said. "You look at individual emails, individual pieces of testimony, and piece together a circumstantial case, arguing that the most reasonable inference from the evidence is that the defendant knew X and said Y, and did it with wrongful intent."

In fact, some legal experts believe that the SEC may be singling out S&P over other raters specifically because of an email trail that it left behind in the crisis, even though other ratings firms may have behaved similarly.

Some emails, which were unearthed by U.S. Senate investigators, reveal that analysts at S&P had doubts about the agency's ratings for bonds issued by a collateralized debt obligation known as Delphinus CDO 2007-1. That CDO is now at the center of the SEC probe of S&P.

Some of the contents of the CDO, a portfolio of mortgage securities that were bundled into bonds, were swapped at the eleventh hour, meaning that analysts weren't ultimately rating the bonds they thought they were.

"You can take a look and see if it is different from the closing date portfolio you received from the banker," S&P's Lois Cheng wrote to colleague Lauren Sprinkle in the first of a series of exchanges made public at an April 23, 2010, hearing by an investigative panel headed by U.S. Senator Carl Levin.

In the eighth email in the set, Sprinkle copied in more senior members of the team and said it appeared that about 25 assets in the portfolio "were dummies" which had been replaced at the last minute with assets that would have "made the portfolio worse... and they would have not been able to close."

The emails were dated August 20, 2007 - just 18 days after S&P had published its ratings on the deal. After that, S&P did not downgrade any of its Delphinus ratings for four months, according to an exhibit at Levin's hearing.

A McGraw-Hill spokeswoman declined to comment.

Levin's committee introduced no Moody's emails mentioning the Delphinus CDO, except for one from an investment banker to Moody's requesting that the agency assign a more experienced analyst to his next deal. Fitch Ratings was not examined by the committee.

Levin's panel ultimately issued a scathing report in April this year that condemned S&P and Moody's for helping trigger the financial crisis. The report was referred for review to the SEC and Department of Justice.

LEGAL SHIELDS

For the past several years, the SEC has faced pressure to find a way to bring charges against the credit-rating agencies for their role in the crisis.

The task has proved exceedingly difficult.

For example, Khuzami said, certain kinds of conduct by the raters could only be addressed starting in September 2007. That was the effective date of a 2006 law that formally granted the SEC full-scale regulatory authority over raters.

In addition, the 2006 law expressly prohibits the SEC from regulating the substance of ratings. Some have asserted that this provision helped shield credit-rating agencies from enforcement actions involving how ratings are determined.

It was not until last year when the Dodd-Frank law was enacted that Congress strengthened the SEC's authority by clarifying that raters cannot assert that excuse as a defense in civil fraud actions, Khuzami said.

Even with the Dodd-Frank changes, however, credit raters have long maintained that that their ratings constitute opinions which are protected as free speech under the First Amendment to the U.S. Constitution. That defense has historically shielded the agencies from lawsuits by investors who challenged their ratings, saying they lost money by relying on them.

Although Moody's and Fitch have yet to indicate they may face any charges in connection with the financial crisis, experts say it is possible SEC enforcers could still go after them.

"It may be a case where they are staging their approach and they intend to go after the other two as well," said Daniel Drosman, a law partner at Robbins Geller Rudman & Dowd, which is suing S&P and Moody's to recover money investors lost buying top-rated bonds.

For his part, Khuzami said the SEC will continue to vigorously pursue any wrongdoing among credit rating agencies. He also said the SEC is moving forward on cases related to other financial firms who played a role in the recent credit crisis.

"It is clear that credit crisis cases remain a priority," he said. "There are others that will be coming."

(Reporting by Sarah N. Lynch and Andrea Shalal-Esa in Washington and David Henry and Jonathan Stempel in New York; Editing by Tim Dobbyn)

Darkening economic prospects and fears the euro zone debt crisis will unravel into financial catastrophe sent global stocks plummeting around 14 percent since the last quarterly poll of equity strategists in June.

Only the Dow Jones Industrial Average and South Korea's KOSPI are expected to finish the year with gains compared with 2010's closing levels, among the 19 major stock indexes covered by Reuters polls over the last week.

Still, despite the dire performance of stock markets so far this year, most respondents were stuck in their usual habit of predicting big gains, no matter what real risks face the world economy.

According to the consensus, only one index -- Taiwan's TAIEX -- is expected to finish 2011 at a significantly lower level than its close on Thursday.

The last three months have seen an enormous spike in stock market volatility, to the point that several of the survey's usual sample of around 350 analysts refused to give forecasts this time.

While analysts are waiting for clear signs either way of progress or failure in fixing the euro zone debt crisis, stalling economic growth in major Western economies will restrain share prices in coming months.

"The global slowdown will still drive economic growth and earnings lower," said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels.

"Obstacles to a new bull market are still formidable... there is a lot of political uncertainty. This will take time to clear."

World equities have already lost around $3.7 trillion dollars in market capitalization since the start of this year -- more than the nominal gross domestic product of Germany.

Even by midway through next year, analysts expect only a handful of stock indexes -- seven out of 18 -- to top their closing 2010 levels. By comparison, world stocks rose around 30 percent in 2009 and around 10 percent last year.

TOP PERFORMERS

There is at least some support for the notion that equity markets should start rising again, other than the perennial bullishness of equity market analysts.

For one thing, global shares look undervalued compared with historical averages. The MSCI World Index is currently trading a little over 10 times 12-month forward earnings, the lowest since December 2008, and considerably below the average of 14.3 over the past decade.

Investors too are entering the fourth quarter with a slightly raised exposure to shares and holding high reserves of cash that could quickly be used to fuel a stock rally, a Reuters poll showed on Thursday.

Russia's RTS index, long the darling of the poll's equity bulls, again topped the chart among indexes expected to yield the biggest returns with a 32 percent gain expected between now and mid-2012.

The Shanghai Stock Exchange should rise smartly next year after a torrid two years of heavy losses, the poll showed, while Brazil's Bovespa is expected to rally about as strongly as Russia.

"Even with the sovereign debt crisis in Europe worsening and discouraging U.S. data, we see the Brazilian economy as plenty resilient," said Paulo Esteves of Gradual Investimentos.

The survey also suggested strong gains lie ahead on some rich-world bourses, with bourses in the United States, Australia, France, Germany and Japan expected to yield double-digit returns from now until mid-2012.

"The recent sell-off in stock markets around the world, especially in Europe, has been the result of a lack of confidence, not growth," Markus Huber, head of German sales trading at ETX Capital, said.

Even so, the near-term outlook is very uncertain. The Dow Jones Industrial Average is the only developed-world index that analysts expect to finish the year in the black, with a modest gain of around 2 percent over the course of 2011.

LAGGARDS

Taiwan's TAIEX is expected to be by far the worst performing market out of the 19 indexes in the Reuters poll.

Having already lost around 20 percent of its value so far this year, analysts see the TAIEX falling a further 5 percent from now until the end of the year and almost 9 percent by mid-2012, as the tech-heavy index suffers badly from slowing exports to struggling Western economies.

The other most notable laggard was Britain's FTSE 100, one of the world's largest by capitalization, which respondents expect will register a full-year loss of around 11 percent.

The poll showed the FTSE gaining marginally between now and the end of the year, and only about 6 percent between now and mid-2012 -- considerably less than forecast for its U.S. and European peers.

"I would say that there is potential for upside on the FTSE, but I think the likelihood of any economic growth has been stunted severely by what's happening in the euro zone," said Martin Dobson, head of trading at Westhouse Securities.

(Additional reporting from reporters in London, Paris, New York, Tokyo, Shanghai, Sydney, Hong Kong, Johannesburg, Frankfurt, Milan, Sao Paulo, Toronto, Seoul, Moscow and Mumbai. Polling by Ruby Cherian and Shaloo Shrivastava in Bangalore, Analysis by Sumanta Dey and Yati Himatsingka. Editing by Ross Finley and Jon Loades-Carter)

Gross domestic product grew at annual rate of 1.3 percent, the Commerce Department said in its third and final estimate for the quarter, up from the previously estimated 1.0 percent.

The revision was a touch above economists' expectations for a 1.2 percent pace and took GDP growth back to the government's original estimate of 1.3 percent. The economy expanded at a 0.4 percent rate in the first three months of the year.

While the expenditure side of the economy showed severe weakness in the first half, economic activity as measured by income fared a little better. Gross domestic income rose at a 1.3 percent rate in the second quarter after increasing 2.4 percent in the first quarter.

The report also showed after-tax corporate profits rising at a 4.3 percent rate in the second quarter, the largest increase in a year, instead of 4.1 percent. Profit ticked up 0.1 percent in the first quarter.

Political haggling in Washington over budget policy and a deepening debt crisis in Europe have eroded confidence, leaving the U.S. economy on the brink of a new recession.

There is cautious optimism the economy will skirt another downturn as factory output continues to expand, although at a slower pace than earlier in the recovery, and businesses maintain their appetite for spending on capital goods.

Details of the GDP revisions also were consistent with an economy that is on a slow growth track rather than sliding back into recession.

Consumer spending growth was revised up to a 0.7 percent rate from 0.4 percent. The increase in spending, which accounts for more than two-thirds of U.S. economic activity, was still the smallest since the fourth quarter of 2009.

Export growth was stronger than previously estimated, rising at a 3.6 percent rate instead of 3.1 percent. Imports increased at a 1.4 percent rate rather than 1.9 percent.

That left a smaller trade deficit, and trade contributed 0.24 percentage point to GDP growth.

Businesses accumulated less stock than previously estimated in the quarter, which should support growth in the July-September quarter. Business inventories increased $39.1 billion instead of $40.6 billion, cutting 0.28 percentage point from GDP growth during the quarter.

Excluding inventories, the economy grew at a 1.6 percent pace instead of 1.2 percent.

Business spending was revised to a 10.3 percent rate from 9.9 percent rate as investment in nonresidential structures offset a slight slowdown in outlays in equipment and software. Spending on nonresidential structures was the fastest since the third quarter of 2007.

The GDP report also showed inflation pressures remaining elevated during the quarter, with the personal consumption expenditures price index rising at a revised 3.3 percent rate. That compared to 3.9 percent in the first quarter.

The core PCE index closely watched by the Federal Reserve advanced at a 2.3 percent rate, the largest increase since the second quarter of 2008. It was revised up from 2.2 percent. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

* The final (third) Q2 estimate for gross domestic product (GDP) will be released at 1230 GMT. Economists forecast a 1.2 percent annualized pace of growth, compared with a 1.0 percent rate in the preliminary (second) estimate.

* First-time claims for jobless benefits for the week ended September 24 are due at 1230 GMT. Economists predict a total of 420,000 new filings, compared with 423,000 in the prior week.

* At 1400 GMT, National Association of Realtors issues Pending Home Sales for August. Economists expect a 1.8 percent drop, compared with a 1.3 percent drop in the previous month.

* The Labor Department issues at 1230 GMT preliminary annual benchmark revision to U.S. nonfarm payrolls for the five years ended March 2011.

* At 1230 GMT, the Commerce Department issues revised Q2 Corporate Profits. In the preliminary Q2 report, profits rose 4.1 percent.

* Hewlett-Packard Co (HPQ.N) has hired Goldman Sachs Group Inc (GS.N) to help the company defend itself against possible activist investors who could push for change, the Wall Street Journal reported.

* Asian technology companies came under pressure on Thursday to slash prices of their tablet computers after Amazon.com (AMZN.O) launched its Kindle Fire at a mass market-friendly $199.

* Workers represented by the United Auto Workers union approved on Wednesday a four-year labor contract with General Motors (GM.N), the first such deal for the top U.S. automaker since its 2009 bankruptcy.

* The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.2 percent in choppy trade, after opening lower, ahead of a German vote to ratify new powers on the euro zone rescue fund.

* International auditors return to Athens on Thursday to deliver a verdict on whether Greece's tougher austerity measures qualify for aid to avert a default that would plunge the country into bankruptcy.

* Japan's Nikkei average .N225 reversed losses to retake the 8,700 level for the first time in over a week, on a rush of buying in the final half-hour of trade as some commodities and U.S. stock futures recovered.

* Commodity-related stocks drove Wall Street lower on Wednesday as stiff declines in energy and metals prices underscored investor concerns about global economic weakness and Europe's debt crisis.

* The Dow Jones industrial average .DJI dropped 179.79 points, or 1.61 percent, to 11,010.90. The Standard & Poor's 500 Index .SPX dropped 24.32 points, or 2.07 percent, to 1,151.06. The Nasdaq Composite Index .IXIC dropped 55.25 points, or 2.17 percent, to 2,491.58.