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The world's largest technology company by sales also gave a modest earnings forecast for fiscal 2012, setting a low bar for new CEO Meg Whitman in what she called a "reset and rebuilding year."

Better-than-expected quarterly results suggested the storied Silicon Valley company was finding its feet after a tumultuous year, but executives said its turnaround effort will entail major -- and as yet unquantified -- investments in research and development and in expanding personnel and internal systems.

Whitman also warned of serious challenges to growth from a worsening external environment, including dwindling demand from Europe. Flooding in Thailand has choked off the supply of hard drives, driving up prices for the crucial components in personal computers.

"We have got some HP-specific challenges," Whitman said in an interview. "We have got to improve execution, we have got to turn our services business, we have got to manage down our IPG channel (imaging and printing group) inventory, we have got to turn around China."

The former eBay Inc CEO, who took over at HP only in September, also said a slow global economy, and Europe in particular, was another challenge along with flooding in Thailand.

"This is going to be disruptive for the industry in Q1 and Q2," she said, adding the full impact of the flooding was still unclear.

HITTING 'RESET'

The results capped a turbulent year for HP marked by strategy flip-flops, executive churn and the ouster of former CEO Leo Apotheker after less than a year in the top job.

Now, with veteran Silicon Valley hand Whitman running things, investors hope HP will move past the internal upheaval and stabilize its business.

Whitman said 2011 provided too many distractions, while an announced decision to consider a sale of the personal systems group hurt HP's business by driving off potential buyers, particularly in China.

"We need to reduce the drama here," she told analysts on a conference call, with a slight chuckle. "There was a lot of drama in 2011."

The past year saw HP consistently miss its own financial forecast, acquire British software company Autonomy for over $11 billion in a move widely panned by investors, and spook Wall Street by floating the possibility of a spin-off of the huge personal computer division.

Whitman said HP will not be making any more large acquisitions, but might still do smaller deals -- potentially in the software sector -- below $500 million.

"There may be two or three acquisitions that we want to take a look at in the software space," she said.

The company also plans to increase its research and development spending in 2012 following a 10 percent rise in the group's budget last fiscal year. It also plans to add sales personnel, particularly to manage big customers.

"I would describe the numbers as stabilization," said Michael Yoshikami, CEO of YCMNET Advisors. "This is the first quarter in a long time there has not been a drastic change or announcement.

"It's a classic case of no bad news is good news."

MODEST OUTLOOK

The company said non-GAAP net revenue in the fiscal fourth quarter inched up 1 percent to $32.3 billion. Analysts had forecast revenue of $32.05 billion on average, according to Thomson Reuters I/B/E/S. Excluding items, HP earned $1.17 a share, better than the average analyst estimate of $1.13 a share, according to Thomson Reuters I/B/E/S.

For fiscal 2012, HP is projecting earnings of at least $4 per share, excluding items. Wall Street analysts on average expect the company to earn $4.54 for the full year, according to Thomson Reuters I/B/E/S.

"They set a goal they could achieve, they wanted to put a number out there that they could hit," said Michael Holt, an analyst with Morningstar. "Meg Whitman is bringing a focus to operating the business which has been lacking."

Sales from HP's personal systems group, encompassing PCs, slipped 2 percent, while revenue from its bread-and-better printing group declined 10 percent, hurt by weak consumer demand. HP is looking to reduce its channel inventory in the printing unit.

The company's shares slid lower to around $26.40 after initially rising on the earnings report after-hours. They shed more than 4 percent in the regular session to close at $26.86 on the New York Stock Exchange.

(Reporting by Poornima Gupta and Edwin Chan; editing by Gary Hill and Andre Grenon)

The committee's co-chairs will issue a statement later Monday, declaring the bipartisan committee was unable to reach a deficit-reduction deal, according to sources, and had failed to bridge deep divides over taxes and spending.

The developments add another degree of uncertainty to a market besieged by global headwinds, although the failure isn't expected to affect the country's credit rating.

In Europe, the FTSEurofirst 300 .FTEU3 index fell 2.4 percent after Moody's said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for the country's credit rating.

Also, Spanish prime minister-elect Mariano Rajoy was under pressure to details his policies to overcome a severe economic crisis after his center-right party won the country's biggest election victory in 30 years.

Adding to market jitters, Chinese Vice Premier Wang Qishan warned the global economy was in a grim state.

"It isn't just the failure of the committee that's causing investors to shun risk around the world, although I thought we would get some kind of last-minute deal," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

"Between the continued concerns about Europe, especially France now, and the comments out of China, there are just so many ongoing problems."

Last week, equities suffered their worst week in two months on concerns about debt problems both domestically and in Europe.

S&P 500 futures fell 18.6 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 160 points and Nasdaq 100 futures sank 22.25 points.

Trading volume is expected to be light this week due to the U.S. Thanksgiving holiday on Thursday. The light action could add to market volatility.

The S&P failed to rise above 1,225 on Friday after a drop below it on Thursday triggered massive selling, and it is now strengthening as technical resistance. Last week, the Dow fell 2.9 percent, the S&P dropped 3.8 percent, and the Nasdaq lost 4 percent.

Pharmasset Inc (VRUS.O) surged 86 percent to $135 in premarket trading after Gilead Sciences Inc (GILD.O) agreed to buy the company for $11 billion in cash. Gilead fell 3.4 percent to $38.53 before the bell.

Also in merger news, Alleghany Corp (Y.N) will buy Transatlantic Holdings Inc (TRH.N) for about $3.4 billion, or $59.79 per share. Transatlantic closed Friday at $54.43.

October existing home sales will be released at 10 a.m. EST (1500 GMT) and are seen falling modestly to 4.8 million units from 4.91 million in the previous month.

(Editing by Jeffrey Benkoe)

Gilead, the world's largest maker of HIV drugs, will pay $137 per share for each Pharmasset share, a whopping 89 percent premium to Pharmasset's Friday closing price.

Pharmasset has been one of the hottest biotech companies, based on the promise of its experimental hepatitis C medicines.

Its shares have soared in the past year on the potential for its oral drugs to create a regimen without interferons, which cause flu-like side effects that lead many patients with the serious liver disease to stop or delay treatment.

Pharmasset has three hepatitis C medicines in clinical trials. Its lead candidate, PSI-7977, recently been advanced into two Phase III studies

Gilead projected the deal would hurt its earnings through 2014. It is expected to close in the first quarter of next year, when Gilead plans to provide further outlook.

Gilead said it had commitments from Bank of America Merrill Lynch and Barclays Capital for financing of the transaction.

Barclays and Bank of America advised Gilead on the deal, while Morgan Stanley advised Pharmasset. Skadden, Arps, Slate, Meagher & Flom LLP is Gilead's legal counsel, while Sullivan & Cromwell LLP is serving as legal counsel to Pharmasset.

(Reporting by Lewis Krauskopf in New York; additional reporting by Anand Basu in Bangalore; Editing by Esha Dey and John Wallace)