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The euro edged up from a two-week low plumbed after surprising weak German industrial orders data, but fading expectations of a near-term eurozone interest rate rise stopped the single currency from pushing too much higher.

U.S. S&P 500 futures were flat. Merger activity drove U.S. stocks to two-and-half year highs on Monday, when the Dow Jones industrial average .DJI and broader S&P 500 .SPX both rose 0.6 percent. .N

Market players in Tokyo said better-than-expected earnings reports from U.S. and Japanese companies have accelerated a shift of money out of inflation-dogged emerging markets and into developed markets with loose monetary policies and more subdued price pressures. .T

"The performance of all emerging markets, including Brazil, India, Indonesia and China, has been very weak this year and the shift of market focus to developed economies with lower inflationary risk is helping Tokyo stocks," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Data from Lipper last week showed a record $4.1 billion outflow from emerging market equity funds in the week to February 2.

Despite sluggish economic growth and persistent deflation, Japan has been the best performing Asian market so far in 2011, with year-to-date gains of around 4 percent.

The Nikkei .N225 rose 0.4 percent, but MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.2 percent, led by a 1 percent decline for the tech sector, with markets in Hong Kong, Singapore, South Korea and India in negative territory.

Australian shares .AXJO rose 0.5 percent as positive earnings from National Australia Bank (NAB.AX) lifted the top four lenders, but shares in investment bank Macquarie (MQG.AX) fell 0.3 percent after it lowered its full-year profit guidance.

Shares in National Australia Bank, the country's top lender, gained 1.9 percent on the back of a forecast-beating 18 percent rise in first-quarter cash profit.

"Every time they come out with a result that says basic operations have done reasonably well and conditions are all tracking in the right direction, you get a steady decrease in the perceptions of risk that go with NAB," said Angus Gluskie, chief investment officer at White Funds Management.

CENTRAL BANK BUYING

The euro rose to around $1.3625, having fallen to $1.3508 on Monday. Some traders were wary of more buying by Asian central banks, which had helped push the single currency higher in the previous session.

"I think that's the train of thought market players have, because they have been intervening constantly," said a trader at a major Japanese bank in Singapore.

The euro has retreated from a 12-week high of $1.3862 since European Central Bank President Jean-Claude Trichet last week doused expectations of an imminent interest rate rise, saying inflation in the eurozone would remain contained.

While the proposals pale in comparison to similar restrictions in Europe, the talk of keeping a keen eye on loopholes indicates regulators want to get tough on banks that make symbolic pay changes while finding ways to gut the intent of reforms.

The Federal Deposit Insurance Corp endorsed on Monday a proposal that executives at the largest financial institutions, such as Bank of America and Goldman Sachs, have half of their bonuses deferred for at least three years.

The bank regulators said they may go further to ensure the bonuses properly align executives' interests with investors, and are considering toughening the proposal to restrict executives from hedging deferred bonuses in the form of stock.

The concern is executives could use hedging techniques to make up for losses if their company's stock goes down during the deferral period, which could put executives' interests at odds with those of shareholders.

"Whether we should be prohibiting hedging in this, that is an issue that is left open," FDIC Chairman Sheila Bair said.

Despite the tough talk, the U.S. plan is markedly softer than the European Union, which in December set guidelines that top bankers be limited to receiving 20 percent of their annual bonuses upfront in cash, with some exceptions.

Massive cash payouts that reward bank executives and traders for short-term returns, without regard to long-term risk, have been cited by international regulators as a factor

in the recent financial crisis.

The U.S. plan responds to both the Dodd-Frank financial overhaul law of 2010, that directed regulators to curb pay plans that encourage excessive risk-taking, and principles agreed in 2009 by the world's group of 20 leading economies (G20).

The FDIC vote on Monday is just a first step and the proposal must still be approved by other U.S. financial regulators, such as the Federal Reserve and Securities and Exchange Commission, before being put out for comment for 45 days.

It is unclear when the other regulators will act, although FDIC staff said it should be within weeks.

PAYCHECK BOUNCEBACK

The U.S. proposal tackles pay for top executives at financial companies with $50 billion or more in assets, including JPMorgan Chase & Co and Morgan Stanley.

How much of the deferred pay an executive could receive would be tied to the performance of the company based on decisions made by the executive during the period covered.

Buying accelerated after the S&P 500 broke through the 1,313 mark, taking it further into levels that prevailed before the financial crisis. Two stocks rose for every one that fell on the New York Stock Exchange, even though the day's rise was on lighter-than-average volume.

Diversified industrial company Danaher Corp (DHR.N) agreed to buy medical diagnostics company Beckman Coulter Inc (BEC.N) for about $6.8 billion. Oil driller EnsCo Plc (ESV.N) said it would buy Pride International Inc (PDE.N) for about $7.3 billion.

Based on the latest available data, the Dow Jones industrial average .DJI was up 69.25 points, or 0.57 percent, at 12,161.40. The Standard & Poor's 500 Index .SPX was up 8.14 points, or 0.62 percent, at 1,319.01. The Nasdaq Composite Index .IXIC was up 14.69 points, or 0.53 percent, at 2,783.99.

(Reporting by Caroline Valetkevitch; Editing by Andrew Hay)

The Federal Deposit Insurance Corp proposed that executives at the largest financial institutions have half of their bonuses deferred for at least three years.

Yet the U.S. plan is markedly softer than the European Union, which in December set guidelines that top bankers be limited to receiving 20 percent of their annual bonuses upfront in cash, with some exceptions.

Massive cash payouts that reward bank executives and traders for short-term returns, without regard to long-term risk, have been blamed by international regulators as a factor in the recent financial crisis.

The FDIC plan responds to both the Dodd-Frank financial overhaul law of 2010 that directed regulators to curb pay plans that encourage excessive risk-taking and principles agreed in 2009 by the world's group of 20 leading economies (G20).

Many Wall Street firms have already spread out their bonus payments in response to the impending rules.

"This has all been kind of baked into people's plans and thinking today," said Alan Johnson of the compensation consulting firm Johnson Associates, about the FDIC's proposal.

But there are signs that in both the United States and Europe that there is upward creep in total compensation figures that offsets the curbs.

Goldman Sachs Group revealed last month that it tripled Chief Executive Lloyd Blankfein's base salary and awarded him $12.6 million of stock, even after the bank's net income plunged last year.

And earlier this month, Citigroup's board approved a base salary of $1.75 million for CEO Vikram Pandit. Pandit had vowed in 2009 to receive an annual salary of $1 until Citigroup returned to sustained profitability.

In Britain, banks such as HSBC and Barclays have raised the fixed part of bank pay in what they say is an essential move to retain staff.

GLOBAL VARIATIONS

The FDIC's proposal would tackle pay for top executives at financial companies with $50 billion or more in assets such as Bank of America Corp, JPMorgan Chase & Co, Goldman Sachs and Morgan Stanley.

How much of the deferred pay an executive could receive would be tied to the performance of the company based on decisions made by the executive during the period covered.

The FDIC's proposal is just a first step that must be approved by other U.S. financial regulators, such as the Federal Reserve and Securities and Exchange Commission, before being finalized. It is unclear when the other regulators will act.

The deal announced on Monday sets the purchase price for Pride's shares at $41.60 each, a premium of 21 percent to Friday's closing price, and would give Ensco more cash flow to to buy new, high-tech rigs needed to meet oil companies' demand for equipment capable of drilling in increasingly tough waters.

"Pride and Ensco combined are going to be in all the major oil-producing regions now," said Kurt Hallead, co-head of energy research at RBC Capital Markets in Austin, Texas.

The industry has been hit hard by the deepwater drilling moratorium in the Gulf of Mexico and stringent shallow-water regulations following last year's BP Plc (BP.L) well blowout, which led to the worst-ever U.S. maritime oil spill.

But major energy companies such as Chevron Corp (CVX.N) and Royal Dutch Shell Plc (RDSa.L) expect to continue spending billions of dollars offshore, encouraged by strong oil prices.

With a total of 74 rigs, including six being built, the deal would lift the combined company past Noble Corp (NE.N) to be second only to Transocean Ltd (RIGN.VX), which has 136 rigs.

GLOBAL SCALE

London-based Ensco's fleet is deployed in the Gulf of Mexico, Europe, the Middle East and Asia, and the deal would add Pride's five rigs off the west coast of Africa and nine rigs off Brazil.

Ensco did not even have any rigs in South America before it agreed to move an out-of-work Gulf of Mexico rig to French Guiana in December. Then just last week, it struck a deal to move a rig to Brazil from Australia.

Brazilian state oil company Petrobras (PETR4.SA) plans to invest $224 billion between 2010 and 2014 as part of efforts to tap into billions of barrels of oil from ultra-deep water fields off its coast, with $119 billion of that going toward exploration and production.

That will require dozens of deepwater drilling rigs that can operate in water depths of 10,000 feet; and although Petrobras has said it plans to build many of its own rigs, drilling contractors are hoping they will win a substantial share of that market.

The new company would have 21 deepwater rigs working or being built, equal to Noble but behind Transocean's 44, giving it a strong position in the most lucrative market segment, which often pays rig owners more than $500,000 per day.

Ensco said rig construction would absorb much of the new company's cash flow in the next few years. Combined, they have added 12 new vessels in the past few years, and now would have the second-youngest deepwater fleet, after Seadrill Ltd (SDRL.OL).

Seadrill, an acquisitive Norway-listed company, had long been seen as Pride's natural buyer, given that it owns nearly 10 percent of Pride's shares. Seadrill Chief Financial Officer Esa Ikaheimonen told Reuters the Ensco offer looked like a "decent number" and said the deal would be positive for the sector.

Offshore drillers are likely to see plenty of acquisitions in the coming months and years as they scramble to increase their size and market share and challenge Transocean, which itself bought GlobalSanteFe in 2007 for about $15 billion.