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The ESM is to open the way for private sector investors to take a loss in case of a sovereign debt restructuring, which will put market pressure on governments to conduct sound fiscal policies and prevent another sovereign debt crisis.

The ESM would also provide financial support to euro zone countries which suffer liquidity, but not solvency problems, through a fund that is likely to be bigger than the current 750 billion euros bailout fund the euro zone has at its disposal.

But to create the ESM, Germany and France insisted that the EU's highest law, the EU treaty, has to be amended so that its operations are not deemed unconstitutional by German courts.

The conclusions, obtained by Reuters, said leaders of the 27-nation bloc would agree to amend the treaty by adding the following sentences to the existing article 136:

"The Member States whose currency is the euro may establish a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under the mechanism will be made subject to strict conditionality."

The ESM will be based on the agreement reached by euro zone finance ministers on November 28. For a full text of the agreement see: here

MEMBERS' POWERS

The leaders' conclusions, which are always prepared in advance of a summit and almost never changed, said the amendment did not increase the powers conferred on the European Union by member states.

This means that the change would not have to be subject to a referendum in Ireland and also satisfies Britain which insisted the change should not entail any transfer of power to Brussels.

The leaders, who meet Thursday and Friday in Brussels, will also agree that the ESM would replace the European Financial Stability Facility and the European Financial Stability Mechanism, which will be operational until June 2013.

The leaders would like consultations with the European Parliament, the European Commission and the European Central Bank on the change to the treaty to end in March 2011 and for approvals in individual countries to finish by end 2012, so that the new law would be in place from the start of 2013.

Euro zone finance ministers are also to finish work on setting up the ESM through an intergovernmental arrangement by March 2011.

"The mechanism will be activated by mutual agreement of the euro area Member States in case of risk to the stability of the euro area as a whole," the draft leaders' conclusions said.

The EU summit will also decide that while the mechanism will be for euro zone members, other EU countries can be involved in the work setting it up if they want to and can take part in ESM operations on an ad hoc basis.

This is similar to the case of Ireland, where the euro zone countries, acting through the EFSF, lent to Dublin, but Britain, Sweden and Denmark, all non-euro zone members of the EU, also provided bilateral loans.

(Reporting by Jan Strupczewski)

Asked by reporters in Quito what price range Saudi favored, Naimi said: "$70-$80 is a good price."

Naimi was speaking at a meeting of the Organization of the Petroleum Exporting Countries that agreed to keep production restraints in place, despite a recent surge in crude prices to $90 a barrel.

A delegate told Reuters that ministers had agree no change in supply after a short meeting and decided to hold their next meeting in June.

In early November Naimi appeared to raise the top end of his preferred price range to $90 when he said consumers were coping with a $70-$90 range.

U.S. crude closed at $87.79 a barrel on Friday have touched a two-year high of $90.76 earlier in the week.

Other ministers said they were content with current price levels. Most bullish was Venezuela but all others who commented said they were content with prices and saw no need to raise output.

"We believe that the market should compensate high production costs. $100 would appear to be an adequate price," said Venezuelan Oil Minister Rafael Ramirez.

Iranian Oil minister Massoud Mirkazemi said global oil demand was "not good" and that "nominal prices are good, real prices are not."

The comments will raise questions among oil traders about what conditions OPEC requires to lift supply.

Shokri Ghanem, chairman of Libya's National Oil Corporation, said fundamentals rather than price were paramount.

"Once there is a shortage in the market, or once we feel there is a shortage in the market, we of course will increase production but it is not just a function of the price," Ghanem said.

With OPEC's next meeting not scheduled until June, markets may now test Saudi Arabia's resolve in keeping prices below $80.

"Clearly prices too high will not help us in the long run, as we saw in 2008," said a Gulf OPEC delegate.

Oil hit a record $147 a barrel in 2008, hitting fuel demand just as economic recession undercut the market and sent crude to a low of under $34 a barrel.

Investors appear to have grown complacent as the CBOE Volatility Index, or VIX .VIX, has fallen to levels not seen since April. Stocks have made new highs on almost a daily basis. The S&P 500 .SPX closed on Friday at its highest level since September 2008 and the Nasdaq .IXIC scored its best finish since late December 2007, with many expecting gains to run through the end of the year.

But Cleveland Rueckert, an analyst at Birinyi Associates in Stamford, Connecticut, believes the year-end rally may be largely done.

"The majority of that gain may already have occurred," he said. "Most people are more likely to be closing out their books at the end of the month and looking for opportunities to open new positions at the start of the next month."

Rueckert said that over the last 65 years, when the S&P 500 has rallied at year's end, the average gain has been 3.4 percent between Thanksgiving and New Year's. So far, the index has risen 3.5 percent since the start of the period.

"A lot of stocks this year have had very big gains and it really wouldn't be surprising to see a lot of the managers close out positions and take some vacation time," he said.

When trading resumes on Monday, that will start the last five-day trading week before Christmas. The following week will be cut short by the holiday. With December 25th falling on Saturday this year, the U.S. stock market will be closed on Friday, December 24th, in observance of the Christmas holiday.

Inflation data for November will dominate next week's economic calendar, with the U.S. Producer Price Index due on Tuesday and the U.S. Consumer Price Index set for Wednesday.

BULLS IN THE EGGNOG

Some see signs of the bulls getting into the eggnog.

The American Association of Individual Investors' latest sentiment survey shows bullish sentiment reached a four-week high. What's more, bullish sentiment has spent 14 weeks above its historical average -- its longest streak in six years.

That is often seen as a contrarian indicator.

This week, the S&P 500 has broken through closely watched resistance levels and has climbed for six of the last eight days to close at fresh two-year highs.

But gains have been accompanied by decreasing participation. Average volume during the last three days of the week was 7.76 billion, well below this year's daily average of 8.62 billion.

"We are entering now the beginning of the seasonal pattern where volume really dries up," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York. "It seems like it's starting a little sooner than usual.

The boost in consumer confidence on the back of an improving jobs outlook was another indication consumers are willing to spend over the holidays while a rise in exports looks set to lift economic growth this quarter.

The data fits into a pattern of an economy that is gaining traction after a slowdown in the summer and is likely to intensify the debate over whether the Federal Reserve needs to keep stimulating the economy through asset purchases.

"We are in the gradual recovery camp and are definitely on the upper side of that now," said Pierre Ellis, senior global economist at Decision Economics in New York. "It adds to a growing number of economic indicators that are looking better than expected."

Consumer sentiment in December rose to its highest level since June and was at its third-highest since the start of 2008, according to a Thomson Reuters/University of Michigan survey. Government data showed U.S. exports in October rose a robust 3.2 percent while imports declined slightly.

U.S. stock indexes closed higher, with the S&P 500 at its highest level since the week Lehman Brothers collapsed in 2008. U.S. Treasury bond prices lost ground while the dollar gained.

The survey's preliminary December reading for consumer sentiment came in at 74.2, up from 71.6 in November. That was above the median forecast of 72.5 among economists polled by Reuters.

Consumers cited a more favorable jobs outlook, chiming with recent data pointing to some improvement in the labor market. But slow jobs growth and high unemployment is still one of the biggest impediments to the recovery.

Although the unemployment rate edged up to 9.8 percent in November, new claims for unemployment benefits fell more than expected last week and the four-week moving average slipped to a fresh two-year low.

Federal Reserve Chairman Ben Bernanke has hinted that the U.S. central bank may increase its current $600 billion bond purchasing program if unemployment continues to stay high.

The sentiment survey's barometer of current economic conditions rose to its highest since January 2008, just after the economic downturn began. The index for December came in at 85.7, up from 82.1 in November and above a forecast of 83.1.

Meanwhile, the U.S. trade deficit for October totaled $38.7 billion, down from a revised estimate of $44.6 billion for September. Analysts surveyed before the report had expected the deficit to narrow just slightly to about $43.60 billion.

Record exports to China and Mexico helped push the overall export tally to $158.7 billion, the highest since August 2008. Exports to the European Union and Japan also grew.

Despite record exports to China in October, the U.S. trade deficit with that country in the first 10 months of 2010 was $226.8 billion, up 20.3 percent from the year-earlier period.

The sharp rise is likely to keep China's trade and currency policies on the minds of U.S. lawmakers in 2011.

Irving Picard, the lawyer recovering money for the victims of Madoff's decades-long multibillion dollar fraud, sued Kohn and the bank she founded, Bank Medici, as well as Italy's UniCredit and its unit, Bank Austria, and 53 other defendants.

The complaint in U.S. Bankruptcy Court in New York said the litigation seeks to recover $19.6 billion in damages. Since Madoff's arrest two years ago, Kohn has not traveled to New York, where she first met Madoff in 1985 and they became business partners, the 161-page complaint said.

Separate lawyers representing Kohn and Bank Medici, now known as 2020 Medici, were not available to comment.

Picard's complaint said that Kohn's denial to Austrian authorities that she was close to Madoff, was false.

"In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness equaled his own," Picard said in a statement. Her husband, her mother and son and daughter were also named as defendants in the lawsuit.

Some of them invoked their Fifth Amendment Rights to remain silent hundreds of times when they were deposed by the trustee, the court document said.

It said even after Madoff's arrest, Kohn laundered hundreds of thousands of dollars through various sham entities. "This dissipation is ongoing," Picard claimed.

The liquidator of BLMIS has filed a blizzard of lawsuits in recent weeks to meet a mid-December legal deadline, the second anniversary of Madoff's arrest.

Madoff, 72, is serving a 150-year prison sentence after pleading guilty in March 2009 to orchestrating a massive Ponzi scheme in which early investors were paid with the money of new clients and almost no actual trading took place.

"THE MEDICI ENTERPRISE"

The complaint dubbed Kohn's part "The Medici Enterprise" and a "deliberately Byzantine structure," and said elements had been "purposefully concealed" from the trustee, United States and other law enforcement authorities.

"We believe that even more information regarding the full scope of this criminal enterprise will be revealed," Picard said.

Separately on Friday, Picard said that his team of lawyers at Baker & Hostetler LLP had reached settlements totaling $80 million with an undisclosed number of charities and nonprofit organizations that withdrew more than they deposited in Madoff's firm.

Overall, about $2.6 billion has been recovered. The trustee and his lawyers have sued individual investors, hedge funds and banks for amounts totaling about $51 billion. They said on Friday that the estimate of the total lost in the Ponzi scheme is approximately $19.6 billion.