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The summit on the French Riviera had been meant to focus on reforms of the global monetary system and steps to rein in speculative capital flows, but a shock decision by Greek Prime Minister George Papandreou Monday to call a referendum on a new EU/IMF aid package for his country has upended the talks.

Papandreou was summoned to Cannes on the eve of the summit and given a stark warning by French President Nicolas Sarkozy and German Chancellor Angela Merkel, both clearly angered by his gambit, which has sent global stock markets and the euro currency spiraling lower.

They convinced the Greek prime minister to bring forward the referendum to early December and insisted it be focused on the broad issue of whether Greece wants to stay in the currency bloc, rather than limiting it to a vote on a new 130 billion euro ($179 billion) bailout package, which a strong majority of Greeks oppose.

They also made clear that Athens would not receive an 8 billion euro aid tranche it desperately needs to avoid default until the referendum had passed.

Should it fail, the EU/IMF aid would end, plunging Greece into a disorderly default that would reverberate across the 17-nation euro zone, engulfing big economies like Italy and Spain.

"Our Greek friends must decide whether they want to continue the journey with us," Sarkozy told reporters at a joint news conference with Merkel after the crisis talks.

The German chancellor, describing the discussions with Papandreou as "tough and hard," said the goal of stabilizing the euro was ultimately more important than saving Greece if it did not want to be saved.

A chastened Papandreou flew back to Athens with his finance minister shortly after the talks had ended. Before leaving he said the referendum could take place on December 4 and would be focused on "whether we want to remain in the euro zone."

DAMAGE CONTROL

Thursday morning, the leaders of France, Italy and Spain, the German finance minister and the heads of the International Monetary Fund, European Central Bank and other top EU officials will meet to look at ways of accelerating the implementation of an anti-crisis package agreed on October 27.

That plan, which includes debt relief for Greece, a recapitalization of European banks and a leveraging of the bloc's rescue fund, the European Financial Stability Facility (EFSF), was meant to stem the two-year old crisis before Papandreou's referendum call sent the bloc into damage control mode.

"The referendum adds a further layer of complexity and uncertainty to an already complex crisis," said Domenico Lombardi, a former IMF executive board member who is now a senior fellow at the Brookings Institution in Washington.

"Most importantly, it starts off a political mechanism that could eventually result in Greece leaving the euro."

As the mini euro zone summit is taking place, Merkel will be holding talks with U.S. President Barack Obama, who is due to arrive in Cannes early Thursday. Heading into an election year, Obama is worried the euro zone crisis could blow up and hit the struggling U.S. economy.

Ben Bernanke, the chairman of the U.S. Federal Reserve, announced Wednesday that the central bank was slashing its projections for growth and raising forecasts for unemployment.

The meeting of leaders from the world's 20 major economies will formally begin with a working lunch that had been meant to focus on the world economy, but is now likely to be dominated by Europe's debt woes.

Sarkozy had hoped to use his presidency of the G20 as a springboard for his own re-election campaign in 2012, setting ambitious goals including a rethink of the global monetary system and measures to fight commodity price volatility.

But he has been forced to scale back expectations as crisis-fighting has taken priority over grand visions of world economic reform.

CHINA WANTS DETAILS

Sarkozy met Chinese President Hu Jintao Wednesday as part of a European effort to convince the world's emerging powers to help boost the firepower of the bloc's bailout fund.

But he told the French president that it was up to Europe to solve its debt woes, according to a statement published by China's Ministry of Foreign Affairs.

China's deputy finance minister Zhu Guangyao said after the talks that Beijing needed more details from Europe before considering any bigger investment in the EFSF.

Doubts about Europe's ability to contain the debt crisis has put Italy firmly in the firing line.

The risk premium on Italian bonds over safe-haven German Bunds has hit euro-lifetime highs this week, despite European Central Bank buying of its bonds.

Italian Prime Minister Silvio Berlusconi has scrambled to come up with measures to placate markets, holding an emergency cabinet meeting to accelerate budget reforms amid mounting calls for his resignation.

The summit in Cannes is being held against a backdrop of rising public anger over economic gloom and a perception that taxpayers are being asked to pay for the sins of reckless banks. Authorities of expecting hundreds of protesters, but the leaders, who are meeting at the site where the annual Cannes film festival is held, are safely cordoned off and French policemen were everywhere on the streets.

(Writing by Noah Barkin; Editing by Alison Williams)

MF Global, the futures brokerage which collapsed Monday after risky trades on European debt, faces a shortfall of $633 million in customer funds, according to an estimate from CME Group Inc.

A source familiar with the matter told Reuters that regulators are still not sure where the money is, and why they can't find it.

CME Group, the biggest U.S. futures exchange operator, said a transfer of funds from customer accounts at MF Global appeared to occur after a CME audit of the funds last week, which would be in violation of CFTC regulations and CME rules.

"It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection," said the CME, one of MF Global's regulators.

U.S. regulators started raising concerns about MF Global's European sovereign debt exposure as early as June, according to a source familiar with the matter, some four months before the company's collapse.

While the event hit volumes in the commodities market earlier in the week, bankruptcy court proceedings on Wednesday offered hope that customers would be able to trade again by the end of the week as their positions and much of their collateral were transferred to other brokers.

As for the broader economic implications, U.S. Federal Reserve Chairman Ben Bernanke said they are limited.

"It appears to be an idiosyncratic case," Bernanke told reporters. "We are monitoring the possible impacts on funding markets and elsewhere, and so far we have not seen any significant impact on financial stability."

But the meltdown of Jon Corzine's firm should spark reforms to separate retail from investment banking operations, according to "Bond King" Bill Gross, who says it marks another example of how Wall Street has "lost its way."

"Do we have a better example today than MF Global in terms of the mingling of those two particular aspects of capital allocation?" Gross, who runs the $242.2 billion PIMCO Total Return portfolio, said at a Charles Schwab Corp conference in San Francisco.

"So the closer we get back to separating the two, I suppose the better from the standpoint of reform."

REGULATOR CONCERNS BACK IN JUNE

Not long ago, Wall Street was witnessing the comeback of Corzine, the ex-Goldman Sachs chief and former New Jersey senator and governor, when he took the helm of MF Global. But the recent revelation of $6.3 billion of European bond positions caused the ratings agencies to cut MF Global's debt to junk status, speeding its descent into bankruptcy.

Though the firm's failure played out in a matter of days, regulators started turning the screws on MF Global months ago.

Around June, the Financial Industry Regulatory Authority (FINRA), one of many regulators that policed the firm, became concerned that MF Global had a substantial position in European sovereign debt and was not appropriately holding capital against it, the source told Reuters.

FINRA began conversations with MF Global about whether it was appropriate under Generally Accepted Accounting Principles to consider the exposure to be off balance sheet, according to the source, who was not authorized to speak publicly.

FINRA felt that regardless of GAAP accounting, MF Global should recognize how much the market value of the sovereign debt-related holdings had declined, and consulted with the U.S. Securities and Exchange Commission, the source said.

After lengthy conversations with FINRA and the SEC, MF Global yielded and infused the additional capital called for, something the firm disclosed on September 1.

Those deals were attractive because they were financed in the repo market, according to Thomson Reuters columnist Bethany McLean. The company was essentially earning money by receiving more interest on the bonds than it was paying to finance the instruments.

MISSING MILLIONS

The European debt trades pushed the company into bankruptcy, but the heat on MF Global now is why it cannot account for a large amount of customer money that was supposed to be kept separate from other funds, sources said.

Regulators are trying to determine if the brokerage used some of the money to support its own trades.

The CFTC has not decided whether it is going to launch a formal probe into MF Global, but it remains an option the agency could consider, a source told Reuters. The agency typically does not announce when it starts an investigation.

"We don't want people to leap to any kind of conclusion that there is something criminal here, and we don't know that," the source said.

The focus turned to bankruptcy court late in the day, where the trustee in charge of liquidating the brokerage said 150,000 customer accounts had been frozen. The CFTC added that it has found a handful of players willing to pick up MF accounts, including ABN Amro Chicago Clearing, ADM Investor Services, Dorman Trading, FCStone, R.J. O'Brien and/or Rosenthal Collins Group.

One piece of good news for MF Global on the money front came from IntercontinentalExchange Inc, one of the world's largest exchange and clearinghouse operators. It said Wednesday that it received all of the margin money it required from MF Global and its customers.

(Reporting by Christopher Doering, Kim Dixon and Sarah N. Lynch in Washington; Jonathan Spicer in New York; John McCrank in San Francisco; Saeed Azhar, Cerelia Lim and Charmian Kok in Singapore; Writing by Edward Tobin; Editing by Phil Berlowitz)

Against all odds, advertisers continue to scoop up commercial time on television, and cable networks including Time Warner's TNT, News Corp's FX and Comcast's USA have been major beneficiaries. Subscription fees have only helped.

That point was driven home on Wednesday when Time Warner reported revenue from its cable networks rose 7 percent. Comcast, whose cable business is run through its majority interest in NBC Universal, posted a 12 percent increase.

"Cable networks drive the profitability of NBC Universal and they continue to perform well," said Comcast Chief Executive Brian Roberts, who has staked his reputation on last year's $30 billion deal for NBCU. (For a graphic of media companies' market cap: r.reuters.com/vyj74s )

Comcast's cable network results stand out even more compared with the performance of its flagship broadcast TV network NBC, whose prime-time schedule has struggled for years. Already NBC has canceled two shows it just rolled out for the new TV season, "Playboy Club" and "Free Agents."

"The cable networks like USA are firing on all cylinders. Unfortunately, the public face of NBC Universal is the broadcast network, and that is just struggling," said Sanford Bernstein analyst Craig Moffett.

At Time Warner, where CEO Jeff Bewkes wants to focus the company squarely on creating content for TV, movies and magazines, advertising sales climbed 6 percent.

It cited strong pricing at its Turner networks, home to original shows such as "The Closer" and to the late-night talk show host Conan O'Brien, news on CNN and sports including baseball and auto racing.

CABLE PROFITS

Overall, Time Warner Inc's adjusted earnings rose a better-than-expected 27 percent to 79 cents a share despite a dip in adjusted operating profit at its cable networks. That dip caused Time Warner Inc's shares to fall as much as 3.7 percent on Wednesday.

"Although we appreciate this concern, we view this as a slight over-reaction given the 7 percent growth at the cable networks and the strong, 18 percent overall adjusted operating income growth," said Collins Stewart analyst Thomas Eagan.

Time Warner also raised its full-year outlook for earnings per share growth to "high teens" percentage points from "at least low teens".

Along with its cable business, the company got a big lift from the latest installment of the Harry Potter movie series.

Operating profits at News Corp's cable networks jumped some 18 percent, helped by strong affiliate fee revenue from cable and satellite TV distributors.[ID:nN1E7A117X]. News Corp also reiterated its previously given fiscal year 2012 outlook for operating income growth of low to mid teens.

ADVERTISING SURPRISE

It is not just Comcast and Time Warner whose results are enjoying the one-two punch of cable advertising and cable subscription fees. Discovery Communications Inc, the company behind hit cable TV shows "Storm Chasers" and "Deadliest Catch," reported quarterly results late Tuesday that surpassed Wall Street expectations.

Next up is Walt Disney Co, with some of the best cable brands in the business, including ESPN. It reports next week.

Today's stubbornly bad job and housing markets -- coupled with Europe's debt crisis -- would seem the sort of troubles that would have advertisers once more slashing budgets.

Advertisers instead appear to be betting that the best way to jump-start sales is to keep their brands in front of consumers with billboards, digital campaigns and, particularly, TV commercials.

Heading into Wednesday, the economy was a major question facing media companies, particularly Comcast. Not only does Comcast rely on advertising from its TV networks, but its chief business of selling broadband, video and telephone services relies heavily on the housing market and consumer confidence.

Overall, it added 229,000 telephone, video and Internet customers. That satisfied Wall Street and calmed worries that arose last week when Time Warner Cable and Cablevision Systems posted disappointing subscriber numbers.

Comcast reported third-quarter net income of $908 million, or 33 cents a share, up from $867 million, or 31 cents a share, in the period a year ago.

Shares of Comcast rose 4 cents to close at $23.02 while Time Warner ended down less than 1 percent at $33.57. News Corp, which ended the day up 1 percent at $16.90, was up slightly in after-market trading by around 1 percent.

(Reporting by Paul Thomasch and Yinka Adegoke in New York; additional reporting by Jim Finkle in New York; editing by Derek Caney, Matthew Lewis, Gary Hill)

"Economic growth strengthened somewhat in the third quarter," the Fed said in its post-meeting statement. "There are significant downside risks to the economic outlook, including strains in global financial markets."

However, Charles Evans, president of the Chicago Fed, dissented against the decision because he believed the central bank should take additional policy action at this meeting.

The Fed did not offer any hints that it was considering additional purchases of mortgage-backed securities or a major overhaul in its communications policies, two options that appeared to be on the table.

Hinting that further bond purchases remain an option, the central bank reiterated that it was prepared to adjust its balance sheet as needed to foster recovery.

Analysts will get more clarity on the Fed's outlook for the economy when the Fed releases quarterly economic forecasts at 2 p.m. (1800 GMT), followed shortly after by a news conference with Fed Chairman Ben Bernanke.

The U.S. central bank's debate over the course of policy

comes against a troubled global backdrop and with the U.S. economy far from full health.

Greece's call for a referendum on the latest euro zone debt deal dashed hopes Europe had finally come to grips with its debt crisis, sending global equity markets into a tailspin.

The U.S. recovery, for its part, remains anemic and could be knocked off course if Europe fails to quell its crisis.

A report on Wednesday showed U.S. private-sector payrolls expanded by 110,000 workers in October, not enough to signal a robust hiring revival, while data on Tuesday showed growth in the manufacturing sector slowed to a crawl.

The economy grew at a 2.5 percent annual pace in the third quarter, a significant improvement over the second quarter's 1.3 percent increase but still too soft to put a dent in the nation's 9.1 percent unemployment rate.

HOUSING BACK IN PLAY?

Faced with a still-weak recovery, the Fed decided in September to embark on a program to sell $400 billion in short-term Treasuries and invest the money in longer-dated bonds, an effort to keep long-term rates down.

It also dipped back into the mortgage market by reinvesting proceeds of its real estate bond holdings back into MBS.

Those actions followed an already aggressive series of steps to try to lift the economy. The central bank slashed benchmark interest rates to effectively zero in December 2008 and expanded its balance sheet to a record $2.8 trillion.

More recently, Fed Governor Daniel Tarullo and New York Federal Reserve Bank President William Dudley have hinted at the possibility of expanding the central bank's presence in the mortgage market. It has already bought some $1.25 trillion in MBS.

MBS purchases are seen as even more controversial than Treasury bond buys. Some Fed officials worry targeting a specific sector of the economy encroaches on fiscal policy, and policymakers had previously pledged to return to an all-Treasury portfolio.

The absence of any mention of this tool in the statement suggests there is not enough consensus around the idea just yet.

Stocks wiped out all gains made during the huge relief rally last week that followed an announcement that European leaders had agreed a basic framework to help reduce Greece's huge debts, boost the region's bailout fund and strengthen banks.

Japanese stocks led Asian losses, falling more than 2 percent, but European shares were expected to rebound from Tuesday's sharp losses on hopes that the U.S. Federal Reserve may signal more measure to aid a fragile economic recovery.

Safety bids supported government bonds but weakened Asian credit markets and pushed oil prices sharply down, while safe-haven gold rose but was capped by a firmer dollar.

Xiao Minjie, chief economist at FuNNeX Asset Management in Tokyo, said the current environment was worse than three years ago when the collapse of Lehman Brothers triggered a financial market meltdown.

"Investors don't want to take risks, halting both inflows to and outflows from funds," Xiao said.

"Lehman was a problem of a single financial institution. We now face an issue of sovereign debt and fiscal problems that is far more complicated to resolve."

MSCI's broadest index of Asia Pacific shares outside Japan fell as much as 1.7 percent before recouping some of the losses to fall 0.7 percent on Wednesday. Japan's Nikkei share slid 2.2 percent.

Financial bookmakers in London called the FTSE 100 index to open up 0.7 percent, while Germany's DAX was seen up 1 percent and France's CAC-40 up 1.2 percent.

"European markets are seen edging up on speculative hopes of a dovish FOMC. Hopes are for some sign of further easing in the wings to ensure that the U.S. economic recovery doesn't falter," said Jonathan Sudaria, dealer at Capital Spreads.

The Federal Open Market Committee, which concludes its two-day policy meeting on later Wednesday, could begin to prepare financial markets for further monetary easing, even if it refrains from any new stimulus just yet.

GREEK DRAMA

With concerns easing about the risk of a hard landing in China and a double-dip U.S. recession, Europe remained a worry.

"Europe remains a source of risk," said Yonghao Pu, chief investment strategist at UBS Wealth Management in a Reuters television interview.

Greek Prime Minister George Papandreou fought off a barrage of criticism to win the backing of his cabinet on Wednesday to push ahead with a referendum the government said would take place as soon as possible on a European Union debt bailout deal.

The chairman of euro zone finance ministers, Jean-Claude Juncker, said Greece could go bankrupt if voters rejected the bailout package.

"For the time being, the risk of political judgments triggering sharp price swings will persist, particularly in markets with low liquidity," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory Co.

The euro was near 3-week lows against the dollar, having suffered its biggest two-day fall since May on uncertainty about the euro zone debt deal.

But the single currency may get some respite in the short term as market focus shifts to the Fed's policy meeting. The dollar index was steady at 77.242, but off Tuesday's peak of 77.676.

DOLLAR FUNDING STRAINS

In a sign that Europe's woes may be spreading to put strains on dollar funding in Japan, the Bank of Japan offered dollars to banks in two market operations on Wednesday for the first time since July last year.

Dollar funding costs in Japan have risen, reflecting the difficulties some European banks were facing, making it cheaper for banks to raise dollars under the central bank operation.

Asian credit markets remained weak, with the retreat from risk pushing the spreads on the iTraxx Asia ex-Japan investment grade index wider by 9 basis points on Wednesday.

The flight to safety pushed up government bonds, with benchmark 10-year Japanese government bond yields falling below 1 percent as traders cited Japanese banks and life insurers as buying cash bonds. The yield curve "bull-flattened", meaning as the decline in long-dated yields outpaced that of shorter and medium maturities.

U.S. gold futures jumped 1 percent, while spot gold edged up 0.4 percent. U.S. crude oil fell more than $1 to $91.05 a barrel on concerns over Greece's debt woes, before trimming some losses.

(Additional reporting by Umesh Desai and Vikram Subhedar in Hong Kong)