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Echoing a Reuters report on Friday from Brussels, the Sunday newspaper said the French and German leaders were prepared to back a deal with other euro countries that might induce the ECB to intervene more forcefully to calm the euro debt crisis.

The newspaper report quoted German government sources as saying that the crisis fighting plan could possibly be announced by German Chancellor Angela Merkel and French President Nicolas Sarkozy in the coming week.

In an advance release before publication, Welt am Sonntag said that because it would take too long to change existing European Union treaties, euro zone countries should just agree among themselves on a new Stability Pact to enforce budget discipline - possibly implemented at the start of 2012.

It could be similar to the Schengen Agreement which applies to EU countries that choose to take part and enables their citizens to enjoy uninhibited cross border travel. Among the countries in the Stability Pact, there would be a treaty spelling out strict deficit rules and control rights for national budgets.

The European Central Bank should also emerge more as a crisis fighter in the euro zone, Welt am Sonntag wrote, saying that while governments cannot tell the independent ECB what to do, the expectations are clear.

"Based upon these measures, there should be a majority within the ECB for a stronger intervention in capital markets," Welt am Sonntag said. It quotes a central banker as saying: "If the politicians can agree to a comprehensive step, the ECB will jump in and help."

The ECB, which cannot directly finance governments, has been buying Italian and Spanish bonds on the open market since August to try to keep down borrowing costs for the euro zone's third and fourth largest economies.

Yields on Italian and Spanish debt have nonetheless climbed in recent weeks, despite the ECB intervention and the appointment of a new technocrat government in Rome and the election of the conservative Popular Party in Madrid.

In Brussels on Friday, euro zone officials said a push by euro zone countries toward very close fiscal integration could give the ECB the necessary room for maneuver to scale up euro zone bond purchases and stabilize markets.

France's Journal du Dimanche newspaper said reforms to Europe's economic governance would be the focus of a speech which Sarkozy will deliver in the Mediterranean port of Toulon on Thursday.

"The European Commission could take on supra-national powers," said one French presidency source, according to the newspaper, saying that Brussels would supervise the decisions of countries at risk of default, provided they request this.

"National parliaments will retain the initiative over the (policy) efforts to be made," one French negotiator told the paper.

The European Commission, the EU executive arm, put forward proposals on Wednesday to grant it intrusive powers of approval of euro zone budgets before they are submitted to national parliaments, which, if approved, would effectively mean ceding some national sovereignty over budgets.

Berlin, meanwhile, is pushing to change the European Union treaty so that a country could be sued for breach of EU budget rules in the European Court of Justice.

Le Figaro said there was resistance within Sarkozy's government to allowing France's budgets to be submitted for scrutiny by an "intergovernmental conference" in Brussels, but the president would seek to rally support for this.

A closer fiscal union could eventually pave the way for joint debt issuance for the euro zone, where countries would be liable for each others' debts.

Germany strongly opposes the joint issuance idea fearing spendthrift countries would piggyback on its low borrowing costs - meaning no gain for the virtuous and no pain for the sinners.

(Additional reporting by Jan Strupczewski in Brussels and Daniel Flynn in Paris; writing by Erik Kirschbaum; editing by Elizabeth Piper/Ruth Pitchford)

After featuring the usual deep discounts on Thanksgiving on Thursday and on Friday, retailers were still offering bargains on Saturday as holiday spending is expected to show only about half the growth of last year.

The holiday shopping season that traditionally kicks off on Black Friday - the biggest day of the year for retailers - is closely watched by investors as consumer spending accounts for about 70 percent of the U.S. economy.

Initial signs were encouraging. ShopperTrak, which measures retail traffic, estimated that sales rose 6.6 percent on Friday compared with a year earlier.

But in 2010 retailers also got off to a strong start to the holidays, only to see a sharp and quick falloff. The National Retail Federation expects holiday retail sales to rise 2.8 percent this year, down from 5.2 percent growth in 2010.

That means an even tougher battle for market share.

"Everybody is fighting for the same consumer," said Laura Gurski, a partner at management consulting firm A.T. Kearney.

Those consumers included Alison Shartrand, a Boston-based accountant who visited clothing retailer Aeropostale's store on Times Square. "I'm only going to shop if there are deals ... the cheaper the better," she said.

Aeropostale Inc, said on its website everything was 50 to 70 percent off in its "Saturday Blowout." At a Gap Inc store in New York's Times Square, everything at the clothing retailer was 60 percent off on Saturday.

"That's the name of the game now - promote, promote, promote," said David Bassuk, managing director of consultancy AlixPartners LLP. "They've got to keep it coming."

STRIKING THE RIGHT BALANCE

Neighborhood shops - often undercut and overwhelmed by big chain stores and warehouse clubs - showcased their own efforts during "Small Business Saturday" promoted by American Express and others. President Barack Obama was among those shopping at local shops in Washington.

The hunt for bargains turned ugly at some stores on Friday.

One of the most outrageous incidents was at a Walmart store in the Los Angeles area, where up to 20 people were hurt when a woman used pepper spray to get the edge on other shoppers rushing for Xbox game consoles. She turned herself in to police on Saturday.

The tough economy, coupled with smart phones that allow for fast comparison of prices, mean the pressure to offer consumers something special and affordable is intense.

"We have put together an entire promotional program for the whole season so we don't shoot all our bullets on the day after Thanksgiving," Jamie Brooks, senior vice president of retail services for Sears Holdings, told Reuters on Friday.

Deep discounts alone may not be enough.

The Black Friday campaign by department store chain Macy's Inc featured an ad with teen singer Justin Bieber and exclusive products will be a focus of its holiday promotions.

Retailers are also trying to strike the right balance between not having too much inventory that must later be sold at profit-draining discounts and making sure they do not anger customers by running out of popular items.

"The most important thing to our customers is when we see something in an ad and come into the store, we have to have it," said J.C. Penney Co Inc executive Mike Thielmann.

Online shopping soared on both Thanksgiving and Black Friday, suggesting that Cyber Monday - the biggest online shopping day of the year - could be a banner day for retailers with the right mix of discounts, special offers and the now commonplace free shipping.

IBM Smarter Commerce, a software and services company for retailers, said online sales rose 39.3 percent on Thanksgiving and 24.3 percent on Black Friday, with robust growth in searches and sales on mobile phones and tablets.

(Reporting by Phil Wahba in New York and Jessica Wohl in Chicago; Additional reporting by Dhanya Skariachan and Mihir Dalal in New York; Editing by Philip Barbara and John O'Callaghan)

American Express (AXP.N) is teaming up with FedEx Corp (FDX.N) and other so-called Big Business companies to promote the second annual "Small Business Saturday," which seeks to drive more purchases at small, local businesses, like bakeries, clothing and accessories retailers and bars.

The event falls between Black Friday, the day after Thanksgiving and the traditional start of the U.S. shopping season, and the Cyber Monday shopping frenzy three days later, which are important for big chain stores and online retailers.

It is aimed at people who may prefer to patronize their local stores than fight off frenzied and sometimes violent shoppers. This year's Black Friday was marked by an incident in which a consumer used pepper spray on rivals at a Wal-Mart store.

Unlike Wal-Mart (WMT.N), which generated roughly $419 billion in sales last year, the businesses targeted on Saturday have a maximum of $100 million in annual sales, with many doing less than $10 million.

"I don't do lines for shopping and I don't do crowds. I'd have to get paid to do that," said Alex Pulido, a Toyota engineer from Hermosa Beach, California.

"I'm not a fan of department stores because there is too much going on there. I'm definitely supporting the local businesses," said Pulido, while shopping at Chubby's Cruisers, a local bicycle store in Culver City, California that was done up with balloons and banners urging shoppers to "Shop Small."

The store, filled with people, offered discounts ranging from 10-15 percent.

Jeff Stibal, the chief executive of Dun & Bradstreet Credibility Corp, said local stores fulfill some shopper needs that big retailers typically overlook.

"Small businesses offer personalized attention and cater much better to local needs apart from offering small discounts and being good for their communities. Your neighbors work at these stores," said Stibal, whose company rates the credit-worthiness of small firms.

Small businesses, which account for a majority of new hiring, were hammered by the U.S. credit crisis but things have improved since with more financing available.

ATTENTIVE TO SHOPPERS

Susan Root and Chris Hart from the upscale town of Belmont, Massachusetts, were among those who went shopping at the Belmont Center, where local stores were bustling with activity on Saturday.

"I like the level of attention you get, and I like going in and knowing the people who work there and building a relationship," said Root at Marmalade, which sells a range of knickknacks from candles and cards to raw honey and tablecloths.

Root and Hart purposely came out to support their local stores on Saturday.

Store manager Lauren Pazzaneze said local businesses shop at each other's stores even if cheaper deals are available at malls.

President Barack Obama also patronized smaller stores on Saturday. Obama visited a local bookstore with daughters Malia, 13, and Sasha, 10, in the diverse, upscale Dupont Circle area of downtown Washington.

"This is 'Small Business Saturday,' so we're out here supporting small businesses," said Obama, standing next to Malia who was hugging an armful of books.

Amex is giving $25 free credit to some customers who shell out $25 or more at designated local businesses on Saturday after offering $100 worth of free ads on Facebook to 15,000 business owners.

Local business owners and associated organizations like Dun & Bradstreet and SnapRetail, are using social media sites like Facebook, Twitter and Groupon (GRPN.O) to build awareness and enthusiasm about the virtue and utility of "shopping small."

(Reporting by Toni Clarke in Belmont, Malathi Nayak in Culver City and Mihir Dalal in New York; Editing by Paul Simao)

(This story was corrected to fix the name of the city in paragraph 6)

As another round of news and bond auctions from Europe begins next week, traders will watch closely sovereign bond yields that have kept markets on edge.

Yields rose in almost every euro-zone country this week, and Germany failed to find enough bids for a 10-year auction. The S&P 500 reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the euro zone and a visit to Washington from top European Union officials, as well as a meeting of euro-zone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the specter of rising yields, France, Britain, Italy, Belgium and Spain are holding debt sales next week. The direction of bond yields will determine the direction of equity markets.

"Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits and markets become more forgiving and rates come down," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion.

"The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary," he said. "You may continue to see more of the same."

Investors have worried about rising borrowing costs in many euro-zone nations, but Italy, the third-largest euro zone economy, has grabbed most of the focus. On Friday Rome paid a record 6.5 percent to borrow for six months and almost 8 percent to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk-on and -off trades that the euro zone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

POLITICS TO DRIVE THE WEEK

President Barack Obama will meet on Monday with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

"The only thing that will come out of that is speculation," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington.

"It will come down to the U.S. trying to convince European leaders to get something in place to solve this crisis."

Not many hopes are set either on Tuesday's meeting where euro-zone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank President Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

IF EUROPE ALLOWS, DATA WILL BE KEY

Some of the most important U.S. economic monthly data will be released next week, but will it be enough to unlink the stock market's behavior and European yields.

New home sales and the S&P/Case-Shiller home prices index will start the week showing if the housing market continues on life support. Data on confidence among consumers, who flooded U.S. stores on Friday as the holiday shopping season started, will be released on Tuesday.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the U.S. number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek labor data takes over with the private sector employment report from ADP and Challenger's job cuts report, followed Thursday by the weekly jobless claims numbers and topped by Friday's monthly non-farm payrolls report.

"It would be a little bit refreshing to focus on the U.S. data for a change," said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

He said if European headlines allow it, the focus will be in the labor market where "most people are looking for modest improvement."

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy; Editing by Kenneth Barry)

The Brooklyn, New York teacher, one of hundreds of thousands of shoppers jostling for deals around the country, said he ended up spending about 25 percent more than he planned, even while worrying about the state of the economy.

"I did not expect such deals," the 33-year old said as he left a Macy's store in Jersey City, New Jersey clutching bags full of clothing for himself and his family.

"It's slashed down to the bones," he said. "There were some great discounts if you showed up early."

Deals are always part of the picture on the Friday after Thanksgiving. This year was notable for an earlier opening for some retailers and possibly for the one shopper using pepper spray to make sure she could get a popular video game system.

The early start by stores brought out younger shoppers such as Alina Ybarra, who spent the wee hours of the morning with her friends as they all looked for items for themselves.

"It's really chaotic," Ybarra, 17, said of her first Black Friday outing as she finished her shopping in Santa Monica, California. She said that she liked the deals at stores such as Gap Inc's Old Navy and Urban Outfitters.

"It seems like a lot of teenagers were the primary shoppers, maybe because of the hour, but I think net-net it's not really going to result in an incremental positive for retailers," Ed Yruma, senior equity analyst at KeyBanc Capital Markets, said after checking out crowds at the Mall of America in Bloomington, Minnesota. He said shoppers were not carrying a lot of shopping bags.

Leon Clare, 24, and Shawn Sykes, 27, both U.S. Navy Corpsmen, drove about 125 miles from 29 Palms Marine Base to Santa Monica so they each could spend close to $175 on a pair of Air Jordan Retro 3 shoes in "Black Cement," popular new sneakers from Nike Inc.

"This is for me," said Clare, who plans to spend more on holiday gifts later on in the season.

"I'm leaving for Afghanistan in March. I'm getting something for everyone, just in case I don't come back."

WORRIED... AGAIN

More than 120 stores at the Mall of America opened at midnight. The crowd at that point was about 15,000 people. Mall operators estimated that it was the largest crowd ever at the mall, which is big enough to hold seven Yankee Stadiums.

While eager shoppers emerged from stores around the country lugging big-screen TVs and bags full of video games and toys, it was far from certain that people will pull out their wallets for much more than the best deals this year. Shoppers with limited budgets started using layaway at chains such as Walmart as early as October.

Retail shares fell more than the overall market on Friday.

"Americans are still worried about jobs, still worried about the economy," said Mike Thielmann, group executive vice president at J.C. Penney, who noted that shoppers were buying gifts and for themselves, and said jewelry was selling well.

In Houston, Rico Salvosa, 60, bought two cameras at Best Buy and said he had saved about $170.

"It's worse than before because business is slow," Salvosa, who wholesales stone countertops, said as he left the store with his daughters. "I don't have a lot of savings for holiday shopping. I told them, 'I cannot buy everything that you'd like.'"

Competition among the retailers was fierce as it was among shoppers, as some stores opened hours earlier than before.

Outside Macy's flagship store in New York, some Occupy Wall Street activists chanted "boycott Macy's" and "stop supporting big corporations" even as about 9,000 people lined up to shop when the store opened at midnight.

Opening early appeared to work, judging from the long lines at stores such as Macy's, Toys R Us, Best Buy, Walmart and Target.

"It was crazy around midnight and one in the morning," said a Target employee at the chain's East Harlem, New York store, where the crowd thinned out later on Friday morning.

Even after a Toys R Us in New Jersey had been open for nearly an hour, at 9:50 p.m. EST on Thursday night, there was still a line of about 300 people waiting to get inside.

The 24 hours that started at 9 p.m. Thursday will be the biggest in retail history, with sales estimated at $27 billion, according to Craig Johnson, president of Customer Growth Partners, one of the few experts predicting a strong season.

The term "Black Friday" commonly refers to the day after Thanksgiving, the traditional start of the busy holiday shopping season when retailers do brisk business. (See related story: Spirited 'Black Friday' has dark roots.

While it is the busiest day of the year in terms of store traffic, it does not always mean that sales will soar for the season.

Despite brisk sales right after Thanksgiving in 2008 and 2009, total holiday season sales fell as the recession gripped the country.

The National Retail Federation, an industry trade group, expects 152 million people to hit stores this weekend, up 10.1 percent from last year. Yet it expects sales for the full November-December holiday season to rise just 2.8 percent, well below the pace of last year when sales rose 5.2 percent.

Luxury chains such as Saks Inc and those catering to lower-income shoppers, such as dollar stores, are expected to do well this shopping season.

"For our products that are $25,000 and up, growth is phenomenal," said Mark Vadon, founder of online jewelry retailer Blue Nile. "Price points under $100 are also doing really well. For the mass part of the market, consumers are strapped and being a lot more wary."

Overall, retail executives and analysts expect a more competitive shopping season than in 2010. Unemployment remains at 9 percent, European debt woes are weighing on the stock market, and consumer confidence remains spotty.

Online sales on Thursday and Friday surpassed last year, and more shoppers used their mobile devices to buy, according to IBM data. The amount U.S. shoppers spent via eBay Mobile more than doubled on Thanksgiving, while eBay's PayPal Mobile unit saw a five-fold increase in global mobile payment volume versus last Thanksgiving.

The online push put pressure on some companies. Walmart.com saw some very high traffic, so some customers may have experienced delays as they tried to check out, it said.

Even Apple Inc gets into the Christmas spirit on Black Friday, the only day that it usually offers discounts. This year it offered its typical $101 discount on its $900-plus Mac laptops and $41 or more off its $499-plus iPads.

(Reporting by Dhanya Skariachan, Liana B. Baker and Phil Wahba in New York, Mihir Dalal in Jersey City, New Jersey, Jessica Wohl in Chicago, Diane Bartz in Hyattsville, Maryland, Lisa Baertlein and Edwin Chan in Los Angeles, Alistair Barr in San Francisco and Bruce Nichols in Houston. Editing by Jon Loades-Carter, Phil Berlowitz and Robert MacMillan)