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The two are hammering out a framework deal which focuses on functions and personalities, with Deutsche Boerse Chief Executive Reto Francioni slated to be chairman of what would be the world's largest exchange operator.

NYSE Euronext's general counsel, chief operating officer and global head of technology are set to retain their positions in the combined group, two people familiar with the plan told Reuters on Monday.

The details emerged Monday as Fox Business News reported that CME Group Inc (CME.O), currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would jump in on the global merger frenzy.

Last week, the Frankfurt- and New York-based exchange operators revealed the first details of a merger plan that would give Deutsche Boerse shareholders about a 60 percent stake, and name NYSE Euronext's head Duncan Niederauer as chief executive.

Negotiations over a name, and where to locate various operations across the two continents, highlight some of the difficulties in bringing together companies that are both operationally complicated and symbols of national pride.

"There is an agreement in principle on the broad outlines of the deal," a European source familiar with the deal said.

But other people familiar with the situation said some other issues -- like that of job cuts in technology -- still need to be worked out in detail.

Past merger attempts have failed over such issues.

A deal is set to be presented to the boards of NYSE Euronext and to the supervisory board of Deutsche Boerse on Tuesday, people familiar with the matter said. Deutsche Boerse will also publish fourth-quarter results on Tuesday.

A formal deal announcement could come by mid-morning (Eastern Time) on Tuesday, two sources said.

OUTRAGE

In Germany, the deal is being sold as a German takeover of the NYSE or as a merger of equals. Any suggestion that the NYSE management team will be in control counters that public stance and could create an obstacle to the deal getting done.

Deutsche Boerse risks ceding control to NYSE Euronext (NYX.N), a supervisory board member at the German exchange said.

"The economy is healthier, but it is not yet well," Dudley said in remarks prepared for a press briefing. "In order to reduce joblessness significantly over the coming quarters, the economy needs to grow at a considerably faster rate than we have seen so far in this recovery."

Dudley said persistently low inflation probably hit a trough in the second half of last year but said it would take time for the jobless rate, currently at 9 percent, to fall. He also said it could take up to a year to see a "meaningful recovery" in the housing market.

Dudley is considered one of the more dovish members of the Fed's policy-setting committee and as head of the New York Fed has a permanent voting seat on the panel.

While the U.S. unemployment rate fell unexpectedly in January, Dudley said that was not "an unmitigated positive" and partly reflects people leaving the workforce.

But he said the Fed's $600 billion bond-buying program has helped to ease financial strains and stimulate growth. He expects brisker growth this year and in 2012, adding the "risk of a double-dip has subsided."

"Viewed through the lens of the Federal Reserve's dual mandate -- the pursuit of the highest level of employment consistent with price stability -- the current situation remains unsatisfactory," he said. "However, we appear to be heading in the right direction."

The U.S. economy grew at a rate of 2.9 percent in 2010 after contracting the previous year, and most economists expect quicker growth in 2011.

Dudley, who was speaking at a briefing on economic conditions in the New York Federal Reserve district, also noted that the flow of credit to households increased in the final three months of 2010. For the first time in two years, he noted, households increased their non-mortgage debt, albeit slightly, by $7.3 billion in the fourth quarter to $2.31 trillion.

For example, the number of credit card applications increased, indicating a pick-up in consumer demand for credit.

Total U.S. consumer indebtedness declined to $11.4 trillion as of December 31, continuing a two-year trend, according to a Fed survey also released on Monday. The number of credit card applications. (Reporting by Kristina Cooke and Steven C. Johnson; Editing by Chizu Nomiyama) steven.c.johnson@thomsonreuters.com; 1 646 223 6346

Conservatives say Obama, a Democrat, is a tax-and-spend liberal, and they aim to make the 2012 presidential election a referendum on his fiscal track record.

Details of the budget proposal provided by the White House before its official release showed the deficit rising to $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year.

"It's a start, it's a move in the right direction," said Philip Poole, global head of macro investment strategy at HSBC Global Asset Management in London. "It's a lot less than the Republicans wanted to see. It's not clear that this can actually be enacted," he said.

Obama's budget for fiscal 2012, to be formally released at 10:30 a.m. EST (1530 GMT), is a proposal to Congress laying out the president's policy priorities. Months of wrangling with the Republican opposition in Congress will now follow.

"Even though we might have some differences at the outset, we're very eager to work with Republicans to cut spending, reduce our deficit," a senior Obama administration official told reporters.

The official cited a December tax pact forged between Obama and Republicans as evidence the two sides can work together, but the initial reaction from the other party was skeptical.

"The president talks like someone who recognizes that spending is out of control, but so far it hasn't been matched with action," Senate Republican leader Mitch McConnell said in a statement.

"Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts. And I hope the president will work with us on achieving them soon."

Republicans have already unveiled much tougher proposals aimed at reining in rising U.S. debt, which is set to hit a legal limit in coming months. Failure by lawmakers to agree on funding government operations after a March 4 deadline expires could result in the government shutting down.

That would replay a 1995-1996 showdown between a Democratic president and a Republican-led House of Representatives that ultimately backfired on Republicans. The public sided with then-President Bill Clinton, who won re-election.

GROWTH LIFTS REVENUE

Two thirds of Obama's deficit savings come from spending cuts and expected reductions in interest payments as the deficit declines. The rest comes from higher revenue, in part as provisions in a December pact on payroll taxes and jobless aid expire, and also as stronger growth lifts tax revenue.

As a result, Obama's budget delivers on a promise to halve the deficit by the end of his current term in the White House, in January 2013, compared to when he took office in 2009.

The trade surplus shrank to $6.5 billion from $13.1 billion in December, well short of forecasts for a $10.7 billion gap.

Global stocks and commodity prices climbed higher, with the surprisingly strong imports highlighting China's massive appetite for raw materials and its solid export growth hinting at solidifying recoveries in the U.S. and European economies.

In the past, a weaker surplus would have caused concern for the Chinese government, but more recently it has been trying to shift the economy toward greater reliance on consumption and less on exports, in part to address critics who say that its success has come at the expense of other countries.

It was the third consecutive month of a declining trade surplus, and though not enough to mark a definitive change, that streak provides a symbolic boost to China before the G20 meeting this week of finance ministers from the world's biggest developed and developing economies.

Analysts warned, however, that its surplus could rebound later this year.

"There tends to be a seasonal pattern and there is generally a decline in the trade surplus at the beginning of the year," said Jian Chang, an economist with Barclays Capital in Hong Kong. "Exports tend to be weak in the first quarter, while there is no such pattern in imports."

The G20 meeting in Paris on Feb 18-19 will try to hash out a gameplan for tackling the global economic imbalances that exacerbated and, some say, helped trigger the financial crisis in 2008, with China's yawning trade surplus seen as one of the chief problems.

GLOBAL STRENGTH

China's imports rose 51 percent in January from a year earlier, blowing past market forecasts for a 28 percent rise. Exports rose 37.7 percent in January, topping expectations for a 22.4 percent rise, the customs administration said.

Iron ore prices edged up further to fresh highs after the data, which showed that China was building steel product stockpiles in anticipation of more demand. Asian stocks rallied, snapping five straight sessions of losses.

Yu Song and Helen Qiao, economists at Goldman Sachs, said that the import and export growth reflected well on both the Chinese and global economy.

"The strong exports growth momentum is supported by improvements in economic conditions in China's major trading partners, and strong imports growth momentum is supported by strong domestic demand growth," they wrote in a note. "Besides, the rise in imported commodity prices likely contributed to strong imports data as well."

Copper and iron ore prices ran near record highs for much of January and oil was also costly, pushing up China's import bill.

Commodity-exporting countries were the clear beneficiaries. Imports from South Africa were up 212.5 percent year on year, while shipments from Canada and Brazil were up 146.7 percent and 95.4 percent, respectively.

GE's acquisition John Wood's well support division raised hopes of more deals in the oilfield services sector, where GE has recently been an active buyer of assets.

GE, which is buying the unit through its oil and gas business, in December agreed to buy Britain's oil drilling pipemaker Wellstream Holdings Plc for $1.3 billion.

That followed a 2008 deal to buy pressure control equipment company Hydril for $1.1 billion and a 2007 deal to buy privately held oil and gas field equipment maker Vetco Gray.

The U.S. company has said it could spend up to $30 billion on takeovers in the coming years as CEO Jeff Immelt renews GE's focus on heavy manufacturing after reaching a deal to sell its media unit and scaling back the GE Capital finance arm.

John Wood said it intends to return cash of no less than $1.7 billion to shareholders, helping to boost the company's shares by 14.6 percent to 657 pence at 0921 GMT on Monday, their highest ever level.

"We definitely think they John Wood got an attractive price. It was considerably more than what we were expecting," said Royal Bank of Canada analyst Todd Scholl.

"I would expect that, based on this valuation all of the oilfield services stocks would trade higher. The space certainly is very hot from an M&A perspective. We wouldn't be surprised to see more deals."

Shares in oil services firm Petrofac (PFC.L) traded up 3.1 percent while London-listed pump and valve-maker Weir Group (WEIR.L), which has an oil field services division, rose 5 percent, with the latter helped by speculation that German conglomerate Siemens (SIEGn.DE) could be interested in it.

GE said the John Wood unit acquisition would allow it to tap fast growing demand for enhanced oil recovery from mature oil fields.

"Five years ago, drilling and production in GE did not exist," John Krenicki, CEO of GE Energy said in a telephone interview. "Over the last five years we've built it up to be an industry leader."

He said that GE expects the deal to be 'slightly accretive' in 2011 assuming it closes by the end of the second quarter.

Krenicki doesn't anticipate more deals in the medium term in the specific area of drilling and production, but said there could be deals elsewhere.

"Specific to this space -- drilling and production -- we think we have got what we needed for the medium term," Krenicki said. "But the rest of the energy portfolio has capability to do more and we'll look for things that make sense."

UNLOCKING PUZZLE