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The other 10 regional Fed banks wanted no change in the discount rate. The U.S. central bank's board sided with them, keeping the discount rate steady at 0.75 percent in meetings ahead of its December 14 policy decision.

"Federal Reserve Bank directors noted positive developments that indicated the recovery was continuing, but given ongoing uncertainties, directors remained cautious about the outlook and expected growth to be modest going forward," the Federal Reserve Board said in the minutes.

The directors noted somewhat stronger-than-anticipated consumer spending and expanding manufacturing activity, but also pointed to continued weakness in housing prices and the weak labor market.

The Fed said regional bank directors commented that uncertainty over U.S. fiscal and regulatory policies, the fiscal condition of state and local governments and financial developments abroad were weighing on hiring and capital spending decisions. They generally expected inflation to remain quite low, despite recent rises in food and metals prices.

Against this backdrop, most directors recommended that the current accommodative stance of monetary policy be maintained."

Those in favor of raising the discount rate described it as a "another step toward restoring a pre-crisis discount rate structure" that would result in a 75-basis-point-spread between the discount rate and the upper end of the Federal Open Market Committee's target rate for the federal funds rate, the main policy tool.

"These directors favored a move toward normalization of the primary credit rate in light of the monetary stimulus already in place," the minutes said.

At its December 14 meeting, the FOMC reaffirmed its commitment to buy an additional $600 billion in longer-term U.S. Treasury debt by mid-2011, offering only a cautious nod to the economy's improving prospects. It offered no policy shift, saying the recovery was still not strong enough to bring down unemployment significantly.

(Reporting by David Lawder; Editing by Andrea Ricci)

Goldman, due to report quarterly earnings next week, for the first time will break out how much it earns from trading on its own behalf rather than for clients. Other changes will aim to avoid conflicts of interest and ensure that staff are trained to think about the firm's reputation in their day-to-day activities.

The investment bank released a 63-page report on Tuesday that details 39 plans for how it will change after years of investor accusations that its financial statements are opaque and client complaints about conflicts of interest.

The internal review was kicked off after Goldman was accused by U.S. securities regulators of creating and selling collateralized debt obligations linked to subprime mortgages without telling investors that hedge fund Paulson & Co had helped choose and bet against the debt.

Goldman agreed in July to pay $550 million to settle the lawsuit brought by the U.S. Securities and Exchange Commission, one of the biggest arising from the U.S. housing and credit crises.

The report also follows the passage of a sweeping financial regulatory reform bill last summer that, in part, sought to restrict big Wall Street firms' ability to make bets with their own capital.

'BLACK BOXES'

"Goldman is going down the road of trying to repair its image," said Alan Villalon, an analyst at Nuveen Asset Management, in Minneapolis. "This is a step in the right direction, but it's only a step. What investors really want to know now is, what is the true earnings power of this company going forward."

Goldman shares edged higher in morning trading, gaining 43 cents to $170.19. The shares have gradually recovered from a steep drop that followed the disclosure of the SEC suit last April, rising about 6 percent.

Goldman said it would start reporting more details about whether trading revenue comes from facilitating client transactions or from investing on its own behalf. The change comes in response to widespread criticism that the bank does not adequately disclose how it makes money.

"People have been asking for more information from Goldman for a long time. Black boxes are terrific when earnings are going up, but once things turn sour, investors get aggravated that they can't find out more," said Marshall Front, chairman at Front Barnett Associates in Chicago, which does not own Goldman shares.

Goldman Sachs earned a record $13.39 billion in 2009. The bank's results have been on a roller-coaster ride over the last five years, rising to an eye-popping $11.6 billion in 2007 before dropping to $2.32 billion in 2008, only to reach a record high the following year.

BLANKFEIN UNSCATHED

Goldman's 2010 results are on track to be down from 2009; the bank earned just $5.49 billion in the first nine months of the year. The bank is scheduled to report fourth-quarter results on January 19 under its new disclosure framework.

Goldman said it would set up a new committee to ensure that clients are being treated fairly.

Alcoa Inc (AA.N), the first Dow component to report, posted a quarterly profit late Monday that topped expectations, though revenue missed estimates. Alcoa also forecast a 12 percent rise in demand this year.

"Alcoa's demand outlook was very optimistic, and the fact that it beat on the bottom line sets the stage for other companies to beat," said Cort Gwon, director of trading strategies and research at FBN Securities in New York.

Alcoa's shares dipped 0.7 percent to $16.37 in premarket trading but have gained 25.5 percent since the start of December. Stocks have rallied in recent weeks in part on hopes of a strong earnings season.

European shares rose 1 percent as reassuring comments from Portugal's prime minister eased worries about the country's debt level. U.S. and European stocks were pressured on Monday on concerns the country would need a bailout.

"The comments out of Portugal suggest they won't ask the EU for any aid, at least not right now," Gwon said. "That's reassuring, and it will allow the market to focus on U.S. earnings instead of sovereign debt."

S&P 500 futures rose 5.5 points and were above 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 added 47 points, and Nasdaq 100 futures rose 12.25 points.

The S&P has found technical support near its 14-day moving average, which is around 1,264. The index closed at 1,269.75 on Monday.

Supermarket chain Supervalu Inc (SVU.N) is set to report results on Tuesday, and bellwethers Intel Corp (INTC.O) and JPMorgan Chase & Co (JPM.N) will report later in the week.

Both Sears Holding Corp (SHLD.O) and Tiffany & Co (TIF.N) raised their earnings outlooks, citing strong sales.

Chevron Corp (CVX.N), the second-largest U.S. oil company, was set to give an early look at its fourth-quarter production numbers, along with an indication of its quarterly results.

U.S. wholesale inventories for November will be reported at 10 a.m. (1500 GMT) on an otherwise light day for economic data. Inventories were expected to gain 1.0 percent after a 1.9 percent rise in October. Estimates for November ranged from 0.5-2.0 percent in a Reuters poll.

On Monday, U.S. stocks recovered most of their early losses in light volume to end slightly lower as prospects for strong earnings helped counter worries about Portugal.

(Editing by Padraic Cassidy)

The Miami-based builder, which has operations in 14 states, reported earnings of $32 million, or 17 cents a share, for the quarter ended November 30, compared with $35.6 million, or 19 cents per share, a year ago.

Lennar's quarter last year included a $320.5 million tax benefit, the company said.

Analysts on average predicted fiscal fourth-quarter earnings of 3 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 6 percent to $860.1 million.

New orders fell 5 percent to 2,520 homes. Last Friday competitor KB Home (KBH.N) reported a 25 percent dip in orders, in line with the industry average.

The company's Rialto segment, which invests in distressed land, contributed $12.4 million in operating earnings.

Gross margins were 17.7 percent compared with 11.1 percent last year.

The company's shares, which gained 26 percent in the last three months, closed at $18.90 on the New York Stock Exchange on Monday.

(Reporting by Bijoy Koyitty in Bangalore and Helen Chernikoff in New York. Editing by Vinu Pilakkott and Robert MacMillan)

Philadelphia Federal Reserve Bank President Charles Plosser said the $600-billion quantitative easing plan, known as QE2, would need to be reconsidered if the U.S. economy's current "moderate recovery" picks up steam.

The prospect of sustained price deflation -- a worry for Fed Chairman Ben Bernanke and other backers of the controversial QE2 plan -- is highly unlikely in part because the Fed's massive reserves will eventually flow out into the economy, Plosser added.

"If the economy begins to grow more quickly and the sustainability of this recovery continues to gain traction, then the purchase program will need to be reconsidered along with other aspects of our very accommodative policy stance," Plosser said in prepared remarks.

"The aggressiveness of our accommodative policy may soon backfire on us if we don't begin to gradually reverse course," he said.

"On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to take that into account as we adjust our policy stance."

Plosser's wide-ranging speech to the Risk Management Association was his first public comments in a year in which he rotates into a voting slot on the Fed's policy-setting panel.

It comes as recent data show the U.S. economy is slowly recovering, but also as Fed officials increasingly rally behind QE2, which in early November set the Fed to purchasing Treasury securities in an effort to rejuvenate that recovery.

QE2, the second round of such easing, takes the Fed deeper into unchartered policy in an effort to fend off the threat of deflation and to lower unemployment, which dropped to a still-high 9.4 percent in December.

The central bank has kept interest rates near zero for more than two years to combat the worst recession in decades.

Critics, including many economists and Republican members of Congress who want the bond-buying curbed, say it lays the groundwork for a spike in inflation, and for troublesome asset bubbles.

"While inflation is currently lower than the 1.5 to 2.0 percent level many monetary policymakers would prefer, it does not follow that sustained deflation is imminent or even likely," Plosser said, adding he expects "inflation will be subdued in the near term."

Inflation should accelerate toward 1.5 to 2.0 percent over the next two years, Plosser forecast. He also predicted a reading of 2.5 to 3.0 percent GDP growth in 2010, and 3.0 to 3.5 percent GDP growth annually in 2011 and 2012.

Plosser said he expects the unemployment number to "bounce around in the near term" before gradually recovering. Even though the U.S. jobless rate dropped last month, the economy that month generated only a disappointing 103,000 jobs, and data showed a troubling rise in the number of those exiting the workforce.

Yet reports on U.S. consumer spending, manufacturing, and trade have in recent months suggested the world's biggest economy is healing, setting a nuanced stage for the Fed's next policy-setting meeting January 25 to 26.

Plosser last had a vote on the policy-setting Federal Open Market Committee (FOMC) in 2008. He and Dallas Fed President Richard Fisher, who also is a voting member this year, are seen as most likely to vote against the majority -- though Fisher said in an article published Monday that QE2 would likely run its course.

"Unanimity is not the natural state of affairs in life -- nor is it inside the halls of the Federal Reserve," Plosser said Tuesday.

(Reporting by Jonathan Spicer, Editing by Chizu Nomiyama)