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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)

The U.S. congressional deficit-reduction committee was set to formally announce its three-month-long effort to bridge partisan differences over taxation and spending has failed, aides told Reuters.

Automatic spending cuts of $1.2 trillion over a decade are due to start in 2013, after elections in 2012, if the "super committee" of six Democrats and six Republicans cannot agree.

"It is a minor negative, there are a few questions to be asked -- do Moody's and Fitch for example move to downgrade the U.S.," said HSBC's head of global equity strategy, Garry Evans.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS extended its losses to fall 1.7 percent, after posting its biggest weekly loss in about two months last week. Japan's Nikkei .N225 fell 0.3 percent. .T

European shares were set to fall, with spreadbetters seeing London's FTSE 100 .FTSE opening down 0.9 percent and Frankfurt's DAX .GDAXI and Paris' CAC-40 .FCHI down 0.8 percent. .EU .L

Comments from Chinese Vice Premier Wang Qishan warning that the global economic outlook was grim also hurt Asian equity markets, particularly Hong Kong, where the Hang Seng index .HSI fell 1.9 percent.

LOW EXPECTATIONS

Market expectations for a U.S. deficit deal were low, but a failure of the committee could remind investors of the risks posed by a dysfunctional U.S. government.

The committee was created after a battle over the federal government's debt ceiling nearly shut it down and led to a first-ever cut in the United States' AAA credit rating by Standard & Poor's in the summer, roiling financial markets.

Europe's messy politics, however,, appeared to be heading in the direction of carrying out vital fiscal reforms, offering some relief to investors.

The euro drifted 0.1 percent higher to $1.3525 on Monday, partly helped by a 0.1 percent drop in the dollar index .DXY against six key currencies. <FRX/>

In Spain, the center-right opposition People's Party won a crushing election victory and was expected to push through drastic austerity measures to try to prevent Spain being sucked deeper into the debt storm threatening the euro zone.

"Those policies would undoubtedly be welcomed by markets, yet may not be enough to stabilize the Spanish sovereign," Barclays Capital analysts said in a research note. "Ultimately, we think it is likely that the ECB will need to step up its support."

In Italy, Prime Minister Mario Monti won an overwhelming vote of confidence on Friday after warning politicians against sabotaging a sweeping package of fiscal reforms.

But political wrangling in Greece, which has teetered on the brink of default and set off the panic selling now widespread in bonds of other highly-indebted euro zone members, threatened the new prime minister's bid to win vital bailout funds from European leaders.

PRESSURE ON ECB RISING

Italian and Spanish government bond yields eased on Friday, after the European Central Bank intervened in markets to alleviate pressure from investors demanding higher premiums.

The ECB has resisted rising pressures to step up purchases of euro zone sovereign debt, or the idea of lending to the International Monetary Fund to bail out troubled euro zone economies, despite a growing market perception of the bank as the last hope to stop the debt crisis from spreading globally.

Reflecting worsening dollar funding strains for European banks, euro/dollar three-month cross-currency basis swaps widened further on Friday to -138.50 basis points, the most since the height of the Lehman crisis in 2008.

The premium for the three-month dollar offered interbank lending rate hit the widest since June 2009.

"The probability is quite high that European woes will further shrink global capital markets, aggravating interbank funding strains and drying up investment flows," said Bob Takai, general manager of Sumitomo Corp's energy division.

Sentiment remained cautious in Asian credit markets, with spreads on the iTraxx Asia ex-Japan investment grade index widening around 3 basis points on Monday.

In a sign of risk aversion, investors put fresh cash into U.S. equities, bonds and precious metals funds, along with a big allocation to inflation-protected bond funds to 80-week high of $512 million in the week ended November 16, data from EPFR Global showed on Friday.

(Editing by Alex Richardson)

Sounds like today's Italy or Greece?

No, this was Canada in 1994.

Bids eventually came in, but that close call, along with downgrades and the Wall Street Journal calling Canada "an honorary member of the Third World," helped the nation's people and politicians understand how scary its budget problem was.

"There would have been a day when we would have been the Greece of today," recalled then-prime minister Jean Chretien, a Liberal who ended up chopping cherished social programs in one of the most dramatic fiscal turnarounds ever.

"I knew we were in a bind and we had to do something," Chretien, 77, told Reuters in a rare interview.

Canada's shift from pariah to fiscal darling provides lessons for Washington as lawmakers find few easy answers to the huge U.S. deficit and debt burden, and for European countries staggering under their own massive budget problems.

"Everyone wants to know how we did it," said political economist Brian Lee Crowley, head of the Ottawa-based thinktank Macdonald-Laurier Institute, who has examined the lessons of the 1990s.

But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth.

It would eventually oversee the biggest reduction in Canadian government spending since demobilization after World War Two. The big cuts, and relatively small tax increases, brought a budget surplus within four years.

Canadian debt shrank to 29 percent of gross domestic product in 2008-09, from a peak of 68 percent in 1995-96, and the budget was in the black for 11 consecutive years until the 2008-09 recession.

For Canada, the vicious debt circle turned into a virtuous cycle which rescued a currency that had been dubbed the "northern peso." Canada went from having the second worst fiscal position in the Group of Seven industrialized countries, behind only Italy, to easily the best.

It is far from a coincidence that the recent recession was shorter and shallower here than in the United States. Indeed, by January, Canada had recovered all the jobs lost in the downturn, while the U.S. has hardly been able to dent its high unemployment.

"We used to thank God that Italy was there because we were the second worst in the G7," said Scott Clark, associate deputy finance minister in the 1990s.

Canada's experience turned on its head the prevailing wisdom that spending promises were the easiest way to win elections. Politicians of all kinds and at all levels of government learned that austerity could win.

"I WILL DO IT"

The turnaround began with Chretien's arrival as prime minister in November 1993, when his Liberal Party - in some ways Canada's equivalent of the Democrats in the U.S. - swept to victory with a strong majority. The new government took one look at the dreadful state of the books and decided to act.

"I said to myself, I will do it. I might be prime minister for only one term, but I will do it," said Chretien.

A shrewd political strategist, Chretien believed Canadians were on board, after they were shocked and embarrassed a year earlier when Standard & Poor's downgraded Canadian foreign currency debt to AA plus from AAA.

He wanted history to remember him as the man who rescued Canada from financial ruin and humiliation.

Chretien sat his skeptical cabinet down and laid down the hard truth. He would get rid of the deficit, it would be painful and unpopular and nobody would be spared. There was no choice, no room for negotiation. It had to be done.

The chill in the room was such that newly appointed junior minister for veterans affairs, Lawrence MacAulay, called his wife afterward to say he would soon be out of a job.

"He said, 'Darling, I will be back home in the next election. I will be defeated, because the prime minister explained to us this morning what he intended to do,'" according to Chretien's recollection.

MacAulay, who represents the Prince Edward Island fishing community of Cardigan, has been reelected six times and sits in the House of Commons today. He couldn't be immediately reached for comment to recall the conversation.

RAISING THE ALARM

Canada's scrape with disaster had been building for a long time.

Over a decade earlier, top finance department bureaucrats had begun raising the alarm about the problem of rising debt, a hangover from the big government era of the 1970s.

The period before Chretien came to power in Canada is often likened to the situation in the U.S. today. The country was not yet peering over a precipice, but was fast approaching it.

Clark said he and his colleagues sent memos to their bosses in the 1980s explaining "the arithmetic": growth was low, interest rates were high and it was only a matter of time before Ottawa would not be able to pay interest on its debt.

But successive governments ignored the warnings and wrote budgets that allowed spending to continue to grow.

"It was hugely frustrating," said Clark. "Every year we put out forecasts showing the deficit going away. We just based every budget on ridiculous assumptions."

The budget deficit more than doubled between 1980 and 1990, rising to 8 percent of GDP in 1983 and 1984, before shrinking to a still unsustainable 5.6 percent just before Chretien took over, and all the time debt was soaring. The debt-to-GDP ratio shot up to 67 percent in 1993-94 from 29 percent in 1980.

The numbers aren't that different to the U.S. today with its deficit of around 9 percent for 2011, and debt-to-GDP ratio at 74 percent, up from 40 percent at the end of 2008.

Drawing a parallel to Washington, Clark said Canadian leaders before Chretien paid lip service to the debt problem but did nothing.

"There are no lights blinking saying you're at the edge of the cliff," he said. "The one lesson others can give the U.S. is that the higher that debt-to-GDP ratio goes, the more difficult it's going to be."

Canada already faced a gaping current account deficit, a weakening currency and high interest rates, and more misery was inevitable if the debt crisis wasn't addressed.

The first kick in the teeth from abroad came from the October 1992 S&P downgrade.

Even two decades later, Don Drummond, in charge of the budget at the finance ministry at the time, bristles at the memory, saying that the downgrade should have been "completely irrelevant" because so little of Canada's debt was in foreign currency. But the damage to public opinion was done.

"We were just mobbed by the media. Here's some foreign institution that says Canada is a basket case. If we had had a Canadian agency downgrade us, probably nobody would have shown up," said Drummond.

The politicians had ignored the bureaucrats, but there was no way to sweep international criticism under the rug.

"Fear drives people. It drove us," said Clark.

"THEY DON'T GET IT"

The Liberals thought their first, rushed budget - delivered in February 1994, three months after taking office, was tough.

It reformed unemployment insurance entitlements, and cut defense and foreign aid, as well as closing some business tax loopholes and ending a C$100,000 lifetime capital gains exemption. The savings totaled C$10 billion over two years.

The government said it would review all programs and predicted a deficit of 3 percent of GDP in 1996. But program spending was still budgeted to rise slightly, and the budget was widely seen as a failure.

Pete DeVries, who headed the fiscal policy division, remembers overhearing chatter from economists' and others as he waited for a flight to Toronto just after the budget.

"The mood was so depressed on that plane that I thought we're never going to get off the ground and if we did get off the ground we'd crash, because it was just doom and gloom," he said. "Everywhere you heard the words, 'They don't get it. They just don't get it.'"

Voters certainly didn't get it. People who had canceled vacations or taken a second job to make ends meet in the recession couldn't understand why Ottawa thought it could live beyond its means.

The upstart Reform Party, then the main national opposition party, had campaigned on "zero-in-three" - balance the budget in three years. "We were always trying to go faster," said Reform's leader at the time, Preston Manning.

Three months later, Moody's Investors Service lowered its rating on Canada's foreign currency debt, citing the government's large and growing debt.

In December 1994, Mexico suffered a run on its currency and the following month the Wall Street Journal stung with its "Bankrupt Canada" editorial, lumping Canada with Mexico as a country that might need an International Monetary Fund bailout.

STIFFENING SPINES, AVOIDING CLIFFS

The Liberals were stung by the criticism and, at first reluctantly but then with gusto, they got out the chain saws.

"I think the Moody's and Wall Street Journal stuff reflected what we knew inside," said then-industry minister John Manley.

Cutting government spending programs went against the Liberal grain. Contrary to the Reform Party, the Liberals saw a more important role for government.

Paul Martin now has a lasting reputation as the finance minister who slayed Canada's deficit, but the conversion from spender to cutter was painful. His father, also called Paul, had helped create Medicare, Canada's publicly funded health care system, and suddenly here was Paul Junior contemplating massive cuts.

Clark remembers riding in a taxi with Martin after meetings in New York.

"He said, 'I don't want to do this. I don't want to do this.' And I said to him, 'You don't have any choice because if we don't do it that means you won't be able to keep the programs you've already got. We're going to go over the cliff and we'll be cutting like you won't even believe,'" Clark said.

"We told him you are still a Liberal but you have to be a small 'c' fiscal conservative to be a nice good Liberal."

In the end, Martin famously vowed to tackle the deficit "come hell or high water."

Chretien and Martin later parted ways bitterly, but they formed a formidable duo during the budget cutting.

At one 1994 cabinet meeting, Martin announced a spending freeze. A minister put forward a project that needed funding but Chretien cut him off, reminding him of Martin's freeze.

A second minister raised his hand to ask for funding, and a testy Chretien told the cabinet that the next minister to ask for new money would see his whole budget cut by 20 percent.

Chretien's scrappiness, which was one result of his upbringing in a working class family in rural Quebec, had already earned him the nickname of "Dr. No" when he was finance minister in the 1970s.

"The prime minister was the man with the steel rod up his spine. He was inflexible," Manley said.

For ministers it was brutal. Manley lost half his budget as industry minister in the 1994 budget and went from 54 programs down to 11.

"Everyone knew they had to face the music, and they did it," Chretien said in the interview in his law offices. "They had no choice. There was no great debate. I had made my view very clear."

MORE SPENDING CUTS THAN TAX HIKES

The ratio of spending cuts to tax hikes was seven-to-one. Asked why, Chretien said simply: "There was more need on one side than the other."

That contrasts with proposals this year by President Barack Obama and the Democrats to have a much higher proportion of revenue increases in the deficit-tackling mix.

Canadian ministers were told how much they had to cut and then told to come back with a plan on how to do it. Cuts ranged from five percent to 65 percent of departmental budgets and included controversial cuts in transfers that help provinces pay for health and education, decisions that lengthened medical waiting lists for years to come.

Chretien exempted just a few areas from the cuts, including the Department of Indian and Northern Affairs. He also blocked big changes to benefits for the elderly and made sure tax collectors had enough resources.

In the end, program spending (everything except interest payments on the debt) fell by about 12 percent, or C$14 billion, between 1994-95 and 1998-99. The percentage fall was substantially more after adjusting for inflation.

The gloomy Canadian reaction to the 1994 budget changed to applause in 1995. "People came up to me to say, 'You guys got it,'" DeVries said.

The deficit disappeared by 1997 and the debt-to-GDP ratio began a rapid decline - it is now at about 34 percent.

"The entire political class decided to stop treating this as a matter of political contention and started treating it as a matter of national interest," said Crowley, the political economist.

After wrestling the deficit to the ground, Canada enjoyed what Crowley calls the payoff decade, outperforming the rest of the G7 on growth, job creation and inward investment. From 1997 to 2007, it averaged 3.3 percent economic growth. while U.S. growth averaged 2.9 percent.

The Canadian dollar weakened from around C$1.38 to the U.S. dollar at the time of the 1995 budget to almost C$1.62 in 2002, helping make Canada more competitive. But it has since roared back and now stands close to parity with the greenback.

SHEER DUMB LUCK

Canadians are the first to admit that a lot of their success was the result of good timing that cannot be replicated today. The rosy global economy then contrasts with today's turmoil. There was no euro zone crisis to worry about. The United States and China were growing fast, demanding Canadian exports. Nobody else was reining in spending.

Canadian interest rates plummeted by more than 1,000 basis points between 1990 and 1994, generating huge savings on debt payments and encouraging business investment.

Clark says the U.S. dollar's role as the world's reserve currency may be disguising Washington's problems and means the critical period could be a ways away.

"There's no market discipline," said Clark. "People want to buy U.S. Treasuries and they always know they will get paid."

The parliamentary political system also helped Chretien, since there is no effective division of powers between the executive and legislative branches as in the United States. A prime minister with a majority in the House of Commons can push through whatever he wants.

And politicians were almost all on board. The opposition Reform Party was screaming for even deeper cuts and public opinion was ahead of the politicians in calling for austerity.

SACRED COWS

Some of Canada's lessons are applicable elsewhere and Britain's Liberal Democrats and the Conservatives both cited the Canadian model when peddling their austerity plans to voters in their successful 2010 election campaigns.

Chretien said he had had no qualms in telling Britain's coalition government that it was wrong to exempt areas such as the National Health Service, regarded as sacred by many in Britain, from the drastic spending cuts.

"I told them they made a mistake," Chretien said. "I remember talking with a very senior person in health who said to me privately, 'I'm not very happy that I'm exempt' ... He needed the same pressure as the others."

The Canadian mantra was to go big, spreading the pain and sparing no one, to prevent rivalries and resentment.

"You have to take immediate action and it's got to be primarily on the spending side..., but at the same time everybody has got to come to the market and that really means tax increases as well," Martin told Reuters in August.

CANADIAN LESSONS

Members of the deficit slaying team have since advised countries as far ranging as Bahrain and Bangladesh. Canada has touted its fiscal record to push for coordinated deficit reduction in the Group of 20 most powerful economies.

Some veterans of Canada's successful rebound believe the United States needs a value-added tax similar to the Goods and Services Tax (GST), Canada's Conservatives introduced in 1991.

The Liberals say they were pragmatic, not ideological, on taxes. But they could not boost tax revenues much because Canadians' top marginal income tax rate was already uncompetitive at around 55 percent and the unpopular GST was already on the books.

Reform Party's Manning said the U.S. spending-versus-tax debate does not have to be a question of either/or, but he saw a lesson from the way Ottawa cut its own fat before holding out its hand to taxpayers.

"So you don't completely rule out tax changes or tax increases in the future, but you make them conditional on achieving a certain degree of financial order now," he said.

Former bureaucrats also say flat, across-the-board spending cuts are a bad idea, even though it's more palatable to staff to shave 5 percent off the top of each program.

Unless whole programs are killed, departments might simply postpone vitally needed capital spending, including such things as maintenance and repair, and have to boost it back to former levels within a few years.

The final lesson is that you can impose painful spending cuts and still win elections. Chretien went on to win two more back-to-back to form majority governments, a rare feat. He argued that a responsible Liberal who believes the state has a role in reducing poverty can only do so by ensuring a financially healthy government.

Drummond, who later moved to the private sector and is now an advisor helping the Ontario provincial government slash its deficit, noted that governments on the right and left in Saskatchewan, Alberta and Ontario won more voter support after their own budget cuts in the 1990s.

"Brutal, brutal fiscal restraint, and all won majority governments right afterward," he said.

(Editing by Janet Guttsman and Martin Howell)

Buffett, dubbed the 'Oracle of Omaha' for his long track record as a value investor, will hold a press briefing at 4.15 p.m. (2:15 a.m. EST) after touring a factory near the Fukushima Daiichi nuclear power plant crippled by the earthquake and tsunami in March.

That disaster came just days before Buffett had been due to make his maiden visit to Japan. At the time, the head of Berkshire Hathaway Inc (BRKa.N) said the earthquake was one of those extraordinary events that created buying opportunities. In May, he said he would be "delighted" to invest in Japan.

Buffett arrived by helicopter at Iwaki City in northeast Japan, some 40 km from the Fukushima nuclear plant, and was greeted by some 400 staff at cutting tool maker Tungaloy Corp, a unit of an Israeli firm in which Berkshire Hathaway holds an 80 percent stake. He is due to open a new plant later.

Posing for photographs outside the new factory with staff, holding a sign saying, "Never give up, Fukushima," Buffett said he felt "very welcomed."

Tungaloy, once part of conglomerate Toshiba Corp, supplies automakers with superhard tools used to cut, groove and turn engine parts.

JAPAN STRUGGLES

A swift recovery in Japanese manufacturers' supply chains and output helped the world's No. 3 economy rebound from a post-quake recession and grow by 1.5 percent in the third quarter.

But a strong yen, cooling demand in key export markets and disruptions from widespread flooding in Thailand -- a major production base for Japanese firms -- have clouded the outlook, and Japanese stocks are down about 18 percent this year -- their worst performance since 2008.

Japan's exports fell 3.7 percent in the year to October, the fastest pace in five months, signaling more weakness ahead as the strong yen and sputtering global growth drag on the recuperating economy.

IBM STAKE

Known for avoiding companies he doesn't understand -- including those in the technology sector -- Buffett surprised markets this month when he revealed Berkshire spent nearly $11 billion to build up a 5.5 percent stake in IBM.

Buffett said he was convinced by IBM's long-term road map and by its entrenched position with major businesses -- part of the durable competitive advantage he looks for when investing.

Buffett's name also crops up regularly when there's talk of a large European bank needing to raise capital, particularly in the current environment of writedowns on sovereign debt.

But, in keeping with his philosophy, he told CNBC last week he would need to understand European banks better before investing, and he has not yet seen an investment opportunity there in which he wants to take part.

Early this month, Berkshire Hathaway reported a smaller third-quarter profit after losing more than $2 billion on derivatives related to stock market performance.

During the quarter, Berkshire funded the purchase of chemical maker Lubrizol and a $5 billion investment in Bank of America Corp.

(Writing by Tomasz Janowski, Editing by Ian Geoghegan)

While authorities have touted the fact that they are returning 60 percent of the collateral and cash that had been frozen in the wake of the broker's October 31 bankruptcy, a closer look shows that in fact only about 40 percent of customers' total funds have been authorized for release so far.

The remainder, more than $3 billion, ostensibly remains on hand to cover a shortfall originally estimated by MF Global to regulators at just $600 million.

Because the bankruptcy trustee, regulators and exchanges have made no comment on the missing funds in weeks -- and have given no information as to how much cash they are retaining -- customers are left guessing exactly how much might end up in the creditors' process of the bankruptcy.

After weeks of intense lobbying by customers and exchanges, trustee James Giddens last week won court approval to release another $520 million in funds from MF Global accounts that contained only cash as of October 31.

But that has still left thousands of customers in an uproar. Clients who had a mix of cash and trading positions have yet to see a dime of their excess funds, they say. The trustee is planning a third cash transfer to cover these clients, but no timing for that tranche has been announced.

"The whole process is a mess," said Jason Skole, a private investor who had invested $200,000 at the start of this year in a small hedge fund who traded through MF Global.

"Those who had just cash positions will get some of their money. All I've got is 60 percent of the small amount of collateral I had backing trades," he said. He says around $185,000 of his money is still frozen at the bankrupt firm.

Giddens said late last week that they were working on a third bulk transfer to "true up" the value of distributions so that all former customers get the total 60 percent of their net equity, but they weren't yet confident enough in MF Global's bookkeeping and cash on hand to go beyond that.

"We've seen enough (money) to make the 60 percent distributions but we can't distribute money we don't have," Giddens' spokesman Kent Jarrell told Reuters on Sunday.

"As soon as we identify assets under our control, we are trying to distribute them. And we can't get ahead of that because then we can run out of assets.... We have to find the assets and we have to make sure we have to control those assets. It's a time consuming, complex task and we have hundreds of people working on it on our end now."

CME Group referred all questions to the trustee.

MONEY TRAIL

The tale of the customer's funds goes like this. On October 31, exchange operator CME Group estimated in a court filing that there was a "requirement" of some $5.5 billion in segregated customer funds -- including, presumably, the missing funds that could not be immediately located.

Over the following weeks, while authorities poured over sloppy and haphazard records, the trustee identified two pools of money that could be partly returned to customers.

The first was $2.5 billion in collateral that was being used as margin to cover existing trades. Those trading positions were transferred to new brokers along with 60 percent of the value of the collateral, or about $1.55 billion.

The second was $869 million that was left in MF Global accounts that contained nothing but cash -- either because customers had liquidated all their trades before October 31, or because they simply had no positions open as it failed. The bankruptcy court ruled last week that those account holders would also get back 60 percent, or about $520 million.

Those two pools of funds only account for about $3.4 billion of the original total $5.5 billion. The customers whose accounts hold that remaining $2-plus billion have never been explicitly identified, or told when they will get their funds.

"We have the $520 million to do distribution of cash accounts. And we knew we had the assets to distribute on the first one around. Now we also feel confident we have enough to true up. What we don't know is what we'll have beyond that," said Jarrell.

It's clear that some cash is being held back in order to cover the missing money that regulators say MF Global may have taken from customer accounts, an unprecedented violation of one of the fundamental tenets of commodity brokers.

What has not been clear is why officials have declined to be more specific about how much money they believe should be in those accounts, regardless of what is missing.

"...The Trustee should publish a report showing how much funds have been accounted for, how much has been distributed and how much he is still holding," said Ronald Filler, director of the Center on Financial Services Law at New York Law School.

"Once the accounting nears completion, one would hope that another 20 percent or more will soon be distributed, leaving an adequate amount to cushion any shortfall. If the Trustee holds on to the remaining 40 percent without explanation, then one could possibly presume that the shortfall may be greater than $600 million. Let's hope not."

One answer became clearer on Friday: Some, perhaps most, of those unexplained funds are being held by customers who had both open trades and large sums of money on account at the stricken brokerage, ex-MF Global customers said. While these customers have been reunited with their open trades, their cash is still frozen.

The result? More than $3.3 billion or 60 percent of total customer funds at the time of the bankruptcy are still frozen.

MOUNTING ANGER

While customers were initially outraged at the thought that MF Global had tapped into their segregated funds, that rage has increasingly been targeted at the trustee and the bankruptcy court for the handling of an unprecedented collapse.

"The (bankruptcy) Trustee is creating new protected classes within a pool of segregated customer assets," said John Roe, a spokesman for the Commodity Customer Coalition, a group lobbying for the speedy release of funds representing 7,000 former MF Global customers.

"(This) has dangerous implications in future Future Commission Merchant (FCM) bankruptcies. How is this in the interests of customers, FCMs, bankruptcy creditors or the system as a whole?"

It is still unclear what happened to the $600 million of customer funds unaccounted for since MF Global's Chapter 11 filing, and whether MF Global might have illegally mixed customer funds with its own or used them for its own proprietary trading.

The Commodity Futures Trading Commission, federal prosecutors and the Securities and Exchange Commission are all investigating the bankruptcy.

(Additional reporting by Nick Brown in New York; editing by Marguerita Choy, Jonathan Leff and Edward Tobin)