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In his strongest threat of intervention so far, Finance Minister Yoshihiko Noda said that the yen was rising "too much" and deviating from Japan's economic fundamentals.

"Our stance is clear. We will take decisive action against excessive exchange rate volatility," Noda told parliament.

"I'd like to carefully examine how long we can leave current (exchange-rate) moves unattended."

Noda said he hoped to take appropriate action, in cooperation with the Bank of Japan, to address the currency's rise that was hurting exporters and threatening Japan's recovery from damage wrought by the March 11 earthquake and tsunami.

Data released on Friday showed factory output rose further in June and manufacturers expected more gains in July and August that would bring production close to pre-quake levels, but economists said the yen's rise was clouding the outlook.

Policymakers' repeated verbal warnings have not prevented the dollar from sliding toward the record low of 76.25 yen hit in March on growing fears of a U.S. debt default or credit downgrade. It did not move much on Noda's latest warnings and hovered around 77.81.

A senior BOJ official said the central bank was focusing on how recent yen rises could affect a still fragile economic recovery, suggesting its readiness to ease monetary policy further as early as next week if yen climbs further.

SOLO ACTION

Markets rule out a repeat of the co-ordinated intervention that the Group of Seven carried out in the aftermath of the devastating earthquake in March, but some see solo action by Tokyo as a possibility.

Japanese policymakers, alarmed at the persistent nature of yen rises amid a broad-based dollar weakness, see solo action as an increasingly viable option, although markets are skeptical how long its effect would last.

"Noda's verbal warning has escalated slightly," said Michiyoshi Kato, senior vice president at forex sales at Mizuho Corporate Bank.

"It's not about dollar/yen levels alone. Authorities are probably also watching stock markets. If the U.S. debt problem triggers risk aversion and pushes the yen up suddenly, and if that increases worries about the impact on Japan's economy, Tokyo may act."

Policymakers hesitant of intervention have pointed to the resilience of the stock market as a sign the damage to the economy has been contained so far.

But the Nikkei average fell below the psychologically important 10,000 mark and business lobbies have started to complain more vocally about the government's inaction over the strong yen. Noda said he was aware of business concerns.

The BOJ feels the yen rise has yet to severely undermine business sentiment but is prepared to ease policy further if the standoff in U.S. debt talks roils global markets.

"Japan's economy is just recovering from a big shock after the quake. We need to watch out for the negative impact yen rises could have on the economy through exports, corporate revenues and a worsening of business sentiment," BOJ Executive Director Masayoshi Amamiya told parliament on Friday.

Japan's economy is expected to exit recession and grow moderately in July-September as companies make steady progress restoring supply chains hit by the quake.

(Additional reporting by Tetsushi Kajimoto, Stanley White, Rie Ishiguro and Kaori Kaneko; Editing by Tomasz Janowski)

The world's biggest coffee chain, which is coming off a years-long restructuring that involved closing poorly performing stores to rekindle growth, on Thursday reported better-than-expected fiscal third-quarter earnings.

Seattle-based Starbucks joined a raft of other premium-positioned companies -- including burrito chain Chipotle Mexican Grill (CMG.N) and Whole Foods Market Inc (WFM.O) -- in reporting out-sized same-store sales gains.

"The higher end is alive and well," said RBC Capital Markets analyst Larry Miller. Steakhouses and seafood restaurants also had strong results, he said.

"Reports of the consumer's demise were greatly exaggerated," said Miller, who added that McDonald's Corp (MCD.N) and other restaurant chains showed surprising health during the latest quarter.

Sales at Starbucks' U.S. cafes open at least 13 months, and which yield about four-fifths of its revenue, jumped 8 percent in its fiscal third-quarter ended July 3. Analysts expected a 5.3 percent increase.

Traffic in its home market climbed 6 percent, while average spending per visit rose 2 percent.

Chief Financial Officer Troy Alstead told Reuters menu price increases accounted for the bigger part of the rise in spending, but customers were also buying more food.

Starbucks targets more affluent consumers than the typical U.S. fast-food chain. Those customers have fared better than their lower-income counterparts as the U.S. economy sputters, and they have resumed spending on discretionary items like $4 lattes and organic foods.

CATERING TO THE WELL-HEELED

Starbucks shares, which have benefited from a massive restructuring that slashed costs and shut over 900 poorly performing cafes around the world, are up 60 percent from a year ago. On Thursday, it said it would be adding a net 800 stores globally in 2012.

That expansion comes despite high unemployment and the uncertain outcome of the U.S. debt ceiling debate weighing on the minds of consumers.

Upscale diners seem less wary. Chipotle, which offers naturally-raised meats and organic produce where possible, saw same-restaurant sales jump 10 percent in the most recent quarter. Whole Foods, top U.S. seller of organic food products, said its identical-store sales jumped 8.1 percent.

The gains at Starbucks, Chipotle and Whole Foods outpaced a 4.5 percent rise in U.S. same-restaurant sales at McDonald's, one of the restaurant industry's top performers and the leader among fast-food chains.

"Our results are a little bit in contrast to what I still believe to be an uncertain and fragile environment out there," Alstead said.

Wall Street also was upbeat about the coffee chain's new partnership with Green Mountain Coffee Roasters Inc (GMCR.O), whose popular Keurig machines control about 80 percent of the fast-growing North American single-serve brewing segment.

The companies plan to begin selling Starbucks coffee and Tazo tea for Keurig machines at wholesale clubs, drugstores and supermarkets in North America this autumn, in time for the important winter holiday season.

Alstead said the partnership would generate 3 cents to 5 cents in incremental earnings per share in fiscal 2012.

Green Mountain shares soared more than 16 percent on Thursday, one day after it said that deals with the likes of Starbucks and newly public Dunkin' Donuts (DNKN.O) would brew up bigger profits.

Seattle-based Starbucks boosted its earnings forecast for this fiscal year to $1.50-$1.51 per share from $1.46 to $1.48 a share, previously. Analysts, on average, were expecting a fiscal 2011 profit of $1.50 per share.

It also forecast a 15 percent to 20 percent increase in earnings per share in 2012 and a 10 percent increase in revenue. The forecast is based on mid-single digit comparable store sales growth and the opening of net 800 new stores.

The 2012 forecast includes the expected contribution from the Green Mountain deal.

Starbucks' third-quarter net income rose 34 percent to $279.1 million, or 36 cents per share, beating analysts' average estimate by 2 cents per share, according to Thomson Reuters I/B/E/S. Revenue rose 12 percent to $2.93 billion.

Shares were up 1.3 percent to $40.50 in after-hours trade. That gain came after the shares added 2.6 percent in regular Nasdaq trade on Thursday.

(Editing by Edwin Chan, Bernard Orr)

Sales at U.S. cafes open at least 13 months jumped 8 percent in the quarter, more than the 5.3 percent rise analysts expected.

The world's biggest coffee chain gets roughly 80 percent of its revenue from the United States, where traffic was up 6 percent and average spending per visit rose 2 percent.

Chief Financial Officer Troy Alstead on Thursday told Reuters that menu price increases accounted for the bigger part of the rise in spending, but also that customers were also buying more food.

Starbucks targets more affluent consumers than the typical U.S. fast-food chain.

Those customers have fared better than their lower-income counterparts as the U.S. economy sputters, and they have resumed spending on discretionary items like $4 lattes and organic foods -- as evidenced by strong same-store sales results from chains like Starbucks, Chipotle Mexican Grill (CMG.N) and Whole Foods Market Inc (WFM.O).

Same-restaurant sales rose 5 percent for Starbucks' international business during the quarter.

Starbucks shares, which also are benefiting from a massive restructuring that closed more than 900 cafes and slashed costs, are up 60 percent from a year ago.

NET INCOME JUMPS

The Seattle-based company said net income for its fiscal third-quarter ended July 3 rose 34 percent to $279.1 million, or 36 cents per share, beating analysts' average estimate by 2 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 12 percent to $2.93 billion.

Starbucks boosted its fiscal year earnings forecast to $1.50-$1.51 per share from $1.46 to $1.48 a share, previously. Analysts, on average, were expecting a fiscal 2011 profit of $1.50 per share.

The company also forecast a 15 percent to 20 percent increase in earnings per share in 2012 and a 10 percent increase in revenue. The forecast is based on mid-single digit comparable store sales growth and the opening of net 800 new stores.

Alstead said Starbucks has locked in coffee prices for the coming fiscal year as the market for beans remains volatile.

The company still expects commodity costs, particularly coffee, to take a 22-cent per share bite out of fiscal 2011 earnings.

"Coffee prices in '12 will be higher than '11 to the tune of 21 cents a share," Alstead said.

Shares rose to $40.84 in after-hours trade from their Nasdaq close of $39.98.

(Reporting by Lisa Baertlein, editing by Bernard Orr)

Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 398,000, the Labor Department said on Thursday.

Economists had forecast claims falling to 415,000.

The labor market took a beating in May and June, with the increase in nonfarm payrolls totaling only 43,000.

The drop in jobless claims last week below the 400,000 mark that is normally associated with a stable labor market will be welcome news for the economy after a recent string of weak data.

U.S. stock index futures rose on the report, while prices for Treasury debt pared gains.

"We've been surprised on the upside the past several weeks, but this drop does signal that in the most recent couple of weeks, employers are not laying off large numbers of individuals," said Patrick O'Keefe, director of economic research at J.H. Cohn in New York.

"What we're seeing is that the claims levels are returning to their more normal level, which is in a positive direction."

But an uncertain economic outlook, which has been further clouded by deadlocked talks to raise the nation's borrowing limit and avoid a damaging debt default and credit rating downgrade could hamper progress in the labor market.

The government is expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.

On Wednesday, the Federal Reserve said growth slowed in much of the country in June and early July.

A Labor Department official said there were no special factors in last week's jobless claims data.

The four-week moving average of claims, considered a better measure of labor market trends, fell 8,500 to 413,750.

The number of people still receiving benefits under regular state programs after an initial week of aid declined 17,000 to 3.70 million in the week ended July 16.

Data for the so-called continuing claims covered the survey week for the household survey from which the unemployment rate is derived. The jobless rate rose to 9.2 percent in June from 9.1 percent in May.

The number of Americans on emergency unemployment benefits rose 18,427 to 3.17 million in the week ended July 9, the latest week for which data is available.

A total of 7.65 million people were claiming unemployment benefits during that period under all programs, up 320,152 from the prior week.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

* The S&P 500 .SPX fell 2 percent on Wednesday, losing nearly 3 percent for the week, hit by weak earnings and lackluster economic data and as U.S. politicians struggle to come to an agreement over the debt ceiling days before the deadline to avoid default.

* A bill to cut the U.S. deficit faced a nail-bitingly close vote in Congress on Thursday as the top Republican lawmaker sought to quell an internal revolt and push his plan to avoid a ruinous default.

* Approval of a plan by U.S. House of Representatives Speaker John Boehner would break the inertia in Washington over a U.S. debt crisis that has spooked markets and raised the prospect that the government of the world's largest economy will run out of money to pay its bills in less than a week.

* Investors were also closely watching jobless claims data due at 8:30 a.m. If the number for the week ending July 23 is near Wall Street's forecast of 415,000, it will mark the 16th consecutive week that initial jobless claims hover above 400,000.

* U.S. pending home sales probably fell about 2 percent in June after two months of unusual volatility, which included an 11.3 percent drop in April followed by an 8.2 percent rebound in May. The data is due at 10:00 a.m.

* S&P 500 futures rose 1.8 points and were slightly above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures were up 12 points, and Nasdaq 100 futures gained 5.75 points.

* Exxon Mobil Corp (XOM.N), the world's largest publicly traded oil company, is among several companies to report results. High crude oil prices are expected to have boosted second-quarter profits, but investors have been pressing the company to deliver more cash to shareholders through a higher dividend.

* Others due to report include Starbucks Corp (SBUX.O).

* Financial stocks were in focus as major European banks announced jobs cuts. Swiss bank Credit Suisse (CSGN.VX) is cutting about 2,000 jobs after a second quarter hit by weak trading activity and the strong Swiss franc.

* HSBC (HSBA.L) may cut more than 10,000 jobs as it embarks on a cost-cutting drive, Sky News reported, citing people close to Europe's biggest bank.

* Ford Motor Co (F.N) plans to build a $900 million production plant in India, doubling its investment in the country, as the No. 2 U.S. carmaker seeks to catch up with rivals in the second-fastest growing auto market in the world.

(Editing by Padraic Cassidy)