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In comments that reflect the majority view at the Fed -- including Chairman Ben Bernanke -- Atlanta Fed President Dennis Lockhart said it was unlikely that recent spikes in commodity costs will lead to runaway increases in prices.

"With longer-term inflation expectations remaining stable -- and predicting that commodity price growth will stabilize -- my view is that current monetary policy is appropriate," Lockhart told the Knoxville Economics Club in Tennessee.

Richard Fisher, president of the Dallas Fed and a self-proclaimed inflation hawk, took a divergent view, saying that prolonged easy monetary policy could compound what might otherwise be transitory inflationary pressures.

Warning of "unpleasant" U.S. inflation data ahead, Fisher called on the U.S. central bank to stop "spiking the punch bowl" with more accommodative policy and said the Fed may even need to end its $600 billion bond-buying program early.

"No amount of further accommodation by the Fed would be wise," he told the Society of American Business Editors and Writers in Dallas. "Indeed, it may well be that we should consider curtailing what remains of QE2," he said, referring to the Fed's second round of quantitative easing, which is slated to end in June.

The prices of oil and other commodities have spiked, sparking inflation fears, hit by both strong demand from rapidly growing emerging economies and fears of supply disruptions amid a wave of pro-democracy protests in the Middle East and North Africa.

U.S. crude has been trading at the highest prices since September 2008, rising above $110 a barrel, and the average price of gasoline stands around $3.70 a gallon.

But Lockhart said that while costly fuel is putting a dent in household budgets, the overall effect on inflation is likely to be muted.

In part that's because high unemployment -- at 8.8 percent in March -- is keeping wage-driven inflation under wraps, he said.

Conceding that point as "reasonable," Fisher -- who holds a voting seat this year on the Fed's policy-setting panel -- nevertheless said the Fed should not compound the risk of fueling inflation by adding more liquidity.

Several other hawkish Fed policy makers have pushed noisily in recent weeks for the central bank to heed signs of incipient inflation and to begin to think about raising rates, as the European Central Bank did on Thursday for the first time since 2008.

But Bernanke and other core members of the Fed's policy-setting Federal Open Market Committee have said the recovery is too fragile to withdraw support yet.

Given the still-fragile nature of the recovery, Lockhart said Fed officials should avoid discussing their exit strategy in too great detail, lest they send the wrong signal to the public and financial markets about the direction of interest rates.

In response to the deepest recession in generations, the Fed slashed interest rates to near zero and also committed to buy more than $2 trillion in government bonds and mortgage debt.

U.S. gross domestic product expanded at an annualized rate of 3.1 percent the fourth quarter, a rebound which is less robust than normally seen after a steep downturn.

(Reporting by Pedro Nicolaci da Costa in Knoxville Tenn., Chris Baltimore in Dallas, Ann Saphir in Chicago; Editing by Leslie Adler)

A second source said that a deal was "looking likely."

Google, the world's No. 1 Internet search engine, said in July it would buy ITA Software for $700 million in cash. The announcement sparked concerns that travel websites such as Kayak and TripAdvisor could be deprived of ITA's software.

ITA's QPX is used by leading airlines and travel distributors like Alaska Airlines, American Airlines, Microsoft's Bing and Hotwire, among others.

Kayak.com, for example, asked for assurances that Google would extend its software licenses when they expire, that the software would be upgraded, and that a firewall was placed around the companies' proprietary software -- which ITA can now see -- to protect their intellectual property.

One condition from the Justice Department would touch on licensing of ITA products to Google rivals, said a third source, who spoke privately to protect relationships with the agency.

The ITA buy is part of an acquisition and recruiting spree as Google aims to ensure its online products remain popular as surfers go mobile and turn to new services like the wildly popular Facebook.

But it was not immediately clear if any consent decree would touch on how Google treats potential competitors in search results.

Foundem, a British price comparison website, is one of several companies that have accused Google of manipulating results so that Foundem and other rival websites show up lower in search results. Users overwhelmingly tend to click on the first few results.

Google could not be reached for comment on this story but has said previously that since it does not compete against ITA Software, the deal would not affect competition in the online travel industry and, thus, is legal.

The Federal Trade Commission and Justice Department are reportedly contemplating investigating Google on the issue of search fairness, but any probe would be moot if the issue were resolved as a part of the antitrust assessment of the Google/ITA deal.

European regulators are also looking into Google's search practices.

(Additional reporting by Jeremy Pelofsky; Editing by Dave Zimmerman and Steve Orlofsky)

* The Commerce Department releases wholesale inventories for February at 1400 GMT. Economists in a Reuters survey forecast inventories to rise 1.0 percent, a repeat of the January increase.

* Facing a midnight deadline, the White House and Congress were working furiously on Friday to break a U.S. budget deadlock and avoid a government shutdown, after President Barack Obama and congressional leaders failed to reach a deal in late-night talks.

* At 1430 GMT, Economic Cycle Research Institute (ECRI) releases its weekly index of economic activity for April 1. In the prior week the index read 130.0.

* Goldman Sachs (GS.N) has bought a 12 percent stake worth more than $900 million in China's Taikang Life Insurance Co Ltd, giving the Wall Street giant a foothold into the world's biggest insurance market.

* Resource-related stocks will be in focus after copper rose more than 1 percent on hopes of improving demand for raw materials and crude prices rose 1 percent to a fresh 32-month high on supply cuts in Libya. Gold hit a record high and silver rose to its strongest in 31 years.

* Euro zone finance ministers will discuss Portugal's bailout plea on Friday, including how much it needs and what reforms it could apply in return, but no firm decisions are likely yet, euro zone sources said.

* The FTSEurofirst 300 .FTEU3 index of top European shares rose 0.6 percent as the European Central Bank's decision to raise interest rates on Thursday helped fuel optimism over the health of the euro zone economy.

* Japan's Nikkei average .N225 jumped 1.9 percent to close on Friday at the highest level since the March 11 earthquake as a 24 percent gain in Tokyo Electric Power Co (9501.T), the operator of a stricken nuclear plant, became a factor in encouraging active short-covering.

* On Thursday, the Dow Jones industrial average .DJI was down 17.26 points, or 0.14 percent, at 12,409.49. The Standard & Poor's 500 Index .SPX was down 2.03 points, or 0.15 percent, at 1,333.51. The Nasdaq Composite Index .IXIC was down 3.68 points, or 0.13 percent, at 2,796.14.

(Reporting by Atul Prakash; Editing by Hans Peters)

"I'm not prepared to express 'wild optimism,' but I think we are further along today than we were yesterday," Obama told reporters late on Thursday following a meeting with House Speaker John Boehner and Senate Majority Leader Harry Reid.

Without an agreement on spending for the next six months, money to operate the government runs out at midnight on Friday (0400 GMT on Saturday) and agencies such as the Internal Revenue Service would have to begin a partial shutdown.

A government closing would continue until Republicans and Democrats either resolve their differences or pass a temporary funding bill.

Vital services such as national defense, law enforcement, emergency medical care and air traffic control would continue.

Obama, who has held four face-to-face meetings with the Republican and Democratic congressional leaders over three days, said a few "difficult issues" still had to be resolved. He did not provide details.

Repeatedly over the past few days, optimism over prospects for a deal have been dashed, prompting the two sides to accuse each other of acting to shut down the government for the first time since the mid-1990s.

But Boehner, the top Republican in the House of Representatives, and Reid, a Democrat, managed to issue a joint statement after their latest meeting with Obama.

"We have narrowed the issues, however, we have not yet reached an agreement. We will continue to work through the night to attempt to resolve our remaining differences," they said.

Obama's Democrats have been blaming the impasse on a Republican push for policy provisions that would block public funding of birth control and stymie environmental protection efforts.

Republicans say they need to lock in the biggest spending cuts possible now to begin bringing down budget deficits that some economists say have reached dangerous levels -- a projected $1.4 trillion just this year.

The high-stakes negotiations have aimed to cut spending in the range of $33 billion to $40 billion for the rest of this year in an overall federal budget of about $3.7 trillion.

A government shutdown would idle hundreds of thousands of workers, potentially put a crimp on the U.S. economic recovery, and carry political risks for both Democrats and Republicans who would be seen by voters as failing to make compromises.

Boehner is under pressure to stand firm in the talks from Tea Party conservatives who helped fuel last year's big Republican election gains with promises of deep spending cuts and reduced government.

He likely could ram a spending-cut deal through the House without the support of the dozens of Tea Party freshmen. In doing so he would rely on support from a coalition of more moderate Republicans and moderate Democrats.

But no House Speaker likes to abandon any wing of his or her political party in a legislative fight. It's also unclear whether Tea Party activists would try to remove Boehner from power sometime down the road if he got on their wrong side.

(Additional reporting by Patricia Zengerle, Kim Dixon, Donna Smith, David Alexander, Andy Sullivan, Thomas Ferraro and David Morgan; editing by Mohammad Zargham)