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The star bonds manager was worried that Stern, slated to take over TCW on an interim basis from June 1 of 2009, would try and sideline him by recruiting his No. 2, Philip Barach, to head up the team instead, Gundlach testified in court.

"They are trying to mount a counter-offensive," Gundlach, once called the king of bonds, wrote in a May 29 e-mail showed to the court. "The war is on."

"I was concerned that he (Stern) was acting in a way that was writing me off and trying to push me out of the firm," the outspoken manager told jurors on Thursday. "It seemed like they were dividing and conquering."

Gundlach and TCW are locked in a high-stakes trial with hundreds of millions of dollars on the line, and which has given a rare glimpse into the inner workings of asset management firms and the big personalities that run them.

Gundlach, the industry's self-styled "Pope" and "Godfather," took the stand on Thursday afternoon.

TCW fired Gundlach in late 2009 and sued him a month later, accusing him of stealing trade secrets, plotting to form a new company using TCW proprietary information, and gutting the firm of its entire mortgage-backed securities team.

Gundlach fired back with a counter-lawsuit, alleging that his former employer owed him hundreds of millions of dollars in back wages.

In the weeks following his termination, Gundlach went on to form his own asset management company, DoubleLine Capital, along with three of his co-defendants in the case.

Before Gundlach took the stand, jurors were shown taped video deposition in which Gundlach said he never told anyone on his staff to download data from TCW or copy valuable trading information -- though he did briefly consider such an action.

"That stuff wouldn't do us any good anyway," the bonds manager said in a video deposition played in court on Thursday. "There was never an instruction to do anything."

Cris Santa Ana, a co-defendant and key ally of Gundlach, testified earlier in the trial that Gundlach ordered him to begin downloading TCW information in early September 2009.

Gundlach said in the deposition that he was "very, very angry" upon hearing that he might be fired that month.

"If they're going to fire me, we should have a list of how to call our clients, and maybe their legal documents," he recalled saying on the trading floor.

However, Gundlach said in the video that he rejected the idea "about thirty seconds later, and nothing like that ever happened again."

Gundlach will take the stand again on Monday.

TCW is a unit of French bank Societe Generale.

The case in Superior Court of California, County of Los Angeles, is Trust Co of the West v. Jeffrey Gundlach et al, BC429385.

(Reporting by Mary Slosson; Editing by Gerald E. McCormick, Bernard Orr)

Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 395,000, the Labor Department said on Thursday, the lowest level since the week ended April 2. That was below economists' expectations for a reading of 400,000.

"This could suggest that labor markets aren't rapidly deteriorating, even if it still doesn't shed much light on what's happening on the hiring side of the equation," said Sean Incremona, an economist at 4CAST in New York.

But the optimism generated by the claims report was dampened somewhat by a surprise widening in the trade deficit in June. The June trade deficit jumped to $53.1 billion, the largest since October 2008, from $50.8 billion in May.

The wider trade shortfall could cause second-quarter's 1.3 percent annual growth pace to be revised lower.

U.S. stock index futures pared losses on the claims data, while the dollar extended gains against the euro.

The Federal Reserve said on Tuesday economic growth was considerably weaker than expected and unemployment would fall only gradually. The U.S. central bank promised to keep interest rates near zero until at least mid-2013.

Hiring accelerated in July after abruptly slowing in the past two months. However, there are worries that a sharp sell-off in stocks and a nasty fight between Democrats and Republicans over raising the government's debt ceiling could dampen employers' enthusiasm to hire new workers.

"We're looking toward a period of financial instability ... and that probably will inspire a lot of caution and nowadays, caution translates into layoffs," said Pierre Ellis, a senior economist at Decision Economics in New York.

"We'll see what happens next week, but the outlook for the August U.S. employment report is still for a result as good as it was in July, maybe better."

The continued improvement in the labor market could help to allay fears of a new recession, which have been stoked by the economy's anemic growth pace in the first half of the year.

A Labor Department official said there was nothing unusual in the state-level claims data, adding that only one state had been estimated.

The four-week moving average of claims, considered a better measure of labor market trends, slipped 3,250 to 405,000. Economists say both initial claims and the four-week average need to drop close to 350,000 to signal a sustainable improvement in the labor market.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 60,000 to 3.69 million in the week ended July 30.

The number of Americans on emergency unemployment benefits fell 26,309 to 3.16 million in the week ended July 23, the latest week for which data is available.

A total of 7.48 million people were claiming unemployment benefits during that period under all programs, down 89,945 from the prior week.

(Reporting by Lucia Mutikani; additional reporting by Doug Palmer in Washington and Ellen Freilich in New York: Editing by Neil Stempleman)

Alibaba.com, the listed unit of Alibaba Group, which is 40 percent owned by Yahoo Inc (YHOO.O), operates an e-commerce website that links Chinese small businesses looking to sell their goods to overseas buyers, which makes its turnover sensitive to the performance of the world's major economies such as the United States and Europe, which are struggling with crippling debt crises.

"The global economy, especially in Europe and America, we think will turn weak," said Jonathan Lu, chief executive of Alibaba.com.

Alibaba.com said revenue from its China Gold Supplier package was up 20 percent at 921.19 million yuan in the quarter, contributing 56 percent to total revenues, it said in a statement on the Hong Kong stock exchange.

But paying members fell 2.1 percent from the previous quarter to 832,469. Its China Gold Supplier package and Global Gold Supplier package saw a 3.7 percent and 3.2 percent fall in subscribers, respectively, as the company tried to control the quality of subscribers.

"If you look at their growth rate next year, it will probably slow down as well," said Dick Wei, an analyst of JPMorgan in Hong Kong. "I think the negative outlook of the macro-economy will also affect them as well."

Net profit in April-June jumped to 464.55 million yuan ($99 million) from 362.96 million yuan a year earlier. That beat the average forecast of 420.4 million yuan from five analysts surveyed by Thomson Reuters I/B/E/S.

Revenue grew 19 percent to 1.62 billion yuan. Revenue from its international marketplace rose 20 percent to 948.97 million yuan.

Late last month, Alibaba Group struck a deal with Yahoo and Softbank Corp (9948.T) over a transfer of Chinese e-payments unit Alipay to group founder and chief executive Jack Ma.

Alibaba.com shares were up 2.69 percent before the results. They have lost about 35 percent this year, underperforming the Hang Seng Index .HSI, which is down 15 percent.

(Reporting by Melanie Lee and Lee Chyen Yee; Editing by Will Waterman)

The shares were 6.5 percent firmer at 23.61 euros by 3:16 a.m. EDT. The stock closed down 15 percent at 22.18 euros in Paris on Wednesday.

SocGen's bonds weakened further, however. Spreads on its bonds due in 2016 widened by 45 basis points to the benchmark swaps-plus 260 basis points. The cost of insuring its debt against default also rose, with 5 year Credit Default Swaps 16 basis points wider at 350 basis points.

Rumors about a French sovereign debt downgrade, an expanded bailout for Greece that would hurt French banks, and a government bailout of SocGen, pulled shares of France's second-largest bank down in the heaviest volume since the 2008 financial crisis.

SocGen CEO Frederic Oudea dismissed the rumors as "absolutely rubbish" in an interview with CNBC television after the market closed, adding rumors about a downgrade of France's sovereign debt rating were "very strange" and contrary to the reality of the situation.

In an interview with Le Figaro newspaper published on Thursday, Oudea said the bank had come under "a series of attacks" in the stock market.

He added that the bank had not experienced any losses in particular in the past few days and that its results to date were satisfying.

"The market is an echo chamber: it amplifies good news, as well as bad," Oudea told France Info radio. "People are scared, so the tiniest information touches off irrational fears.

"To our clients, we have to tell them that these rumors are baseless and that they can have confidence in Societe Generale. They should not listen to this stuff, which is totally baseless."

This is the latest stumble for SocGen, which was the weakest of the major French banks in Europe's stress tests of its lenders last month.

Investors have speculated it may have to raise about 3 billion euros to reach new global capital standards if the euro zone crisis worsens.

The bank -- still trying to rebuild its credibility after the Jerome Kerviel rogue-trader scandal in 2008 in which it lost 4.9 billion euros ($6.90 billion) -- also issued a profit warning last week.

Rival French banks also fell sharply on Wednesday, with BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) closing 9.5 percent and 12 percent lower. The three top French banks lost nearly 10 billion euros in market value.

BNP was 1.3 percent firmer at 3:32 a.m. EDT, while Credit Agricole was up 5 percent.

SocGen stock had lost 45 percent over the past 2 1/2 weeks, while BNP had dropped 29 percent and Credit Agricole had plunged 38 percent.

"It is not the moment to sell, you have to calmy hold on," Oudea told France Info. "All the bank shares are very low right now."

($1=.7099 Euro)

(Reporting by James Regan and Leila Abboud in Paris and Natalie Harrison in London; Editing by Dan Lalor and Andrew Callus)

Major European markets also looked set to draw some comfort from the U.S. futures bounce, with financial bookmakers predicting British, French and Germany stocks would open up as much as 1.6 percent.

The Australian dollar, often a measure of investors' willingness to take risks, bounced above $1.02 as Asian equities pulled back from their lows, suggesting traders and investors were being nimble rather than selling with blinders on in the face of risks to global growth.

Trading was whippy and positions were built, slashed and then rebuilt within an hour. The euro crept higher, but Europe's devolving crisis was too complex and disturbing to make any long-term bets.

Fast-moving rumors about a sovereign debt downgrade of France as well as talk doubting the health of French banks swirled in Europe caused the biggest widening in the benchmark index of European credit default swaps on Wednesday since the credit crunch in 2008.

The three major rating agencies later reaffirmed France's AAA rating, and said its outlook was stable, but markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.

European policymakers have been struggling to keep the euro zone's government bond markets from being savaged, but Wednesday's price action suggested the problems may be rapidly spreading to the private sector.

"The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time," said Grant Turley, senior strategist at ANZ in Sydney.

GETTING DOMESTICATED

As S&P 500 futures firmed, Japan's Nikkei share average trimmed initial losses of 2.2 percent and was down 0.7 percent by midday, but still not far from a five-month low hit on Tuesday.

Carmakers and machinery makers fell as investors continued their shift into domestic-demand related and defensive sectors such as pharmaceuticals and retail from cyclicals, on worries over the state of the global economy and the strong yen.

Expectations the Bank of Japan would continue to step into the market to buy Nikkei exchange traded funds also limited the selloff in Tokyo.

By 1 a.m. EDT, S&P futures were up 1.4 percent after the cash index tumbled 4.4 percent overnight on Europe's crisis and fears that the U.S. economy could slide back into recession.

Tuesday's intraday low at 1,101 is major support for the index since it is also the 38.2 percent retracement of the 2009-2011 rally.

The benchmark MSCI Asia Pacific ex-Japan stocks index also pared early losses and was down 0.3 percent by midday, helped by outperforming telecommunications and consumer-related shares.

The index has fallen 13 percent so far in August, in line with the all-country world index, suggesting investors were not being so discriminating in the equity sell-down.

Institutional fund managers were mostly confident about Asian assets and some have been trying to position their portfolios to gain when equities bounce and bond yield spreads over Treasuries tighten.

Khiem Do, head of Asian multi-asset with Baring Asset Management in Hong Kong, said some Asian mutual funds were seeing redemptions but nothing significant.

"From the perspective of long-term institutional investors, if anything there are more people on the buy side than on the sell side. Valuations are very attractive at the moment especially in the case of Asia," Do said.

AUSSIE BOUNCE

The euro bounced as equities recovered from their lows, but remained vulnerable, especially against the yen and Swiss franc.

The euro was at $1.4225, up 0.3 percent on the day, though locked within a tight trading range by the debt crisis in Europe and the U.S. economic slowdown.

"I think the EU debt problem is far bigger a concern for Asia than the U.S. downgrade as investors are continuing to buy U.S. Treasuries anyways," said Francis Cheung, senior strategist with Credit Agricole CIB in Hong Kong.

"I think we can see some rebounds here and there, but overall the sentiment is still very cautious."

High-yielding currencies were popular, with the Australian dollar up 0.9 percent to $1.0240, holding above Tuesday's drop to below parity but well off from $1.10 where the currency started the month.

Commodities were a mixed bag, with copper prices jumping and oil slipping, while precious metals slid after a margin increase by the CME Group on gold futures and the equities comeback.

Spot gold prices were down 0.7 percent to $1,781.89 an ounce after earlier hitting an all-time high of $1,813.79. The undisputed safe haven has risen 11 percent so far this month and is up 27 percent in 2011.

The CME Group raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday. The margin hike was not expected to be a big obstacle to further gold gains.

"It's difficult to see a great deal of selling, because we are in very, very volatile and uncertain times when markets are moving very violently. Gold has proven too much of an attraction as an alternative investment and the margins may not have as much influence," said Darren Heathcote, head of trading at Investec Australia.

Three-month copper on the London Metal Exchange rose 2.7 percent to $8,828 a tonne, after losing 1.6 percent in the last session.

Oil futures fell, with U.S. crude for September delivery down 0.4 percent at $82.58 a barrel, though well off Tuesday's intraday low of $75.71. Prices had jumped overnight after an unexpected decline in U.S. oil inventories.

(Additional reporting by Ian Chua and James Regan in Sydney and Swati Bhat in Singapore; Editing by Kim Coghill)