UPDATE 1-Austrian political establishment on ropes after rightist surge

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UPDATE 1-Investors fret over Italian political uncertainty

By Lisa Jucca and Agnieszka Flak

MILAN, Sept 30 (Reuters) - Investors shunned Italian government bonds and shares on Monday after Silvio Berlusconi pulled the rug from under Prime Minister Enrico Letta's frail coalition government by ordering five centre-right ministers to quit.

Berlusconi's decision, which comes as the media tycoon is facing eviction from parliament after a tax fraud conviction, has left the euro zone's third-largest economy without a functioning government.

Italy's political strife may ripple beyond the country's borders, particularly if new elections result. It leaves some investors hoping President Giorgio Napolitano's determination to seek a new, although scant, parliamentary majority may avert elections in the short-term.

"In our view, new elections are still unlikely this year, with the coalition government likely to gain the confidence vote this week," said Alberto Gallo, credit analyst at Royal Bank of Scotland.

"However, the government's ability to pass structural reforms and handle the crisis around Italy's corporates and banks remains in question."

The yields on Italy's 10-year bond, a good indicator of long-term sentiment towards Italy, spiked to 4.73 percent at the opening. They later stood at 4.65 percent, well below a 7.5 percent yield hit when Italy reached the peak of its sovereign debt crisis in 2011.

Shares in Milan's blue-chip FTSE MIB, which had plunged 2.5 percent minutes after opening, were down 1.8 percent, with banking stocks and broadcasting group Mediaset , controlled by Berlusconi, being particularly hit.

The new crisis come as next year's budget law is currently under negotiations. Italy is also in the middle of corporate turmoil that has prompted management shake-ups at its biggest retail bank, Intesa Sanpaolo and telecoms company, Telecom Italia. No.3 bank Monte dei Paschi di Siena is still waiting for a EU green light to badly-needed state aid.

But there are positives.

Economic conditions have much improved since the country's borrowing costs became close to unsustainable in late 2011. Fiscal austerity measures pushed through by the former government of Mario Monti are expected to curb any fiscal slippage. Also, the Treasury has already met 80 percent of its debt funding needs for this year.

"The economic situation is so much better now than it was when Monti took over," said Eric Nielsen, chief economist at UniCredit.

In addition, many investors still take comfort from the European Central Bank's bond-buying backstop.

SEEKING CONFIDENCE

Letta will go before parliament on Wednesday and hold a confidence vote - a move that will clarify what is left of his parliamentary backing.

The outcome of the vote is uncertain as some of Berlusconi's lawmakers from his centre-right party have shown increasing unease over the shock decision to withdraw government support.

Berlusconi is due to hold a meeting with his party later on Monday.

Letta enjoys a commanding majority in the lower house but would need to win over a couple of dozen senators from Berlusconi's PDL party or opposition parties including the anti-establishment 5-Star Movement to be able to be sure of parliamentary support.

"Markets have grown accustomed to Italy's dysfunctional politics, but there's a sense that things are now spinning out of control," said Nicholas Spiro, who runs specialised consultancy Spiro Sovereign Strategy.

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UPDATE 1-China central bank signs 3.5 bln yuan currency swap deal with Iceland

(Adds previous deal)

BEIJING, Sept 30 (Reuters) - China's central bank has extended a bilateral currency swap agreement worth 3.5 billion yuan with the Icelandic central bank, in a move to strengthen economic cooperation, facilitate economic exchanges and improve currency stability.

The People's Bank of China said in a statement on its website on Monday that the maturity of the deal will be three years and the two sides can extend it further if needed.

The two had originally signed a three-year swap deal for the same amount in June 2010. (Reporting by Jonathan Standing; Editing by Kim Coghill)

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UPDATE 1-KKR buys stake in appliance maker in biggest China deal

* Third Asian deal in the past week

* China's home appliance market expected reach $105 bln in next two years

* Qingdao trades at historic P/E of 10.6 times

By Stephen Aldred and Denny Thomas

HONG KONG, Sept 30 (Reuters) - Investment company KKR & Co LP said it had agreed to buy a 10-percent stake in Qingdao Haier Co Ltd, gaining exposure to China's home appliances market with its biggest investment in the country to date.

The acquisition, which is subject to shareholder and regulatory agreement, is KKR's third Asian deal in a week as it begins to invest its new $6 billion Asia fund, the region's largest ever.

The companies did not disclose the deal value, but a person familiar with the matter said New York-headquartered KKR paid around $550 million.

For the Chinese maker of washing machines and refrigerators the deal means a link to a global investment firm that could help it expand beyond its local market.

For KKR, the deal offers a stake in a firm that is inexpensive compared with peers and part of China's booming consumer market.

Foreign firms have been keen to access China's home appliance sector, which is forecast to grow by about one-fifth in the next two years to $105 billion, according to data from consultancy Euromonitor.

KKR's purchase comes less than two months after Whirlpool Corp, the world's largest maker of home appliances, agreed to buy a majority stake in China's Hefei Rongshida Sanyo Electric Co Ltd for $552 million.

In 2011, Carlyle Group paid $468 million for a 9.4 percent stake in Haier Electronics Group, a company controlled by Qingdao.

Qingdao Haier, which makes and distributes washing machines, refrigerators, air-conditioners and other appliances, has a market value of some $5.8 billion. Trade in its shares was halted on Sept. 12, pending an announcement.

Founded in 1984, Haier Group was a collection of factories on the verge of bankruptcy before transforming itself into a global consumer brand with 70,000 employees.

Qingdao Haier owns a 47.9 percent stake in Hong-Kong listed Haier Electronics Group, according to Thomson Reuters data.

UNDER VALUED

For KKR, the purchase comes at a low point in Qingdao Haier's valuations. The stock trades at a trailing price-to-earnings ratio of 10.6, making it the second-least expensive home appliance maker in the Asia-Pacific behind Gree Electric Appliances Inc of Zhuhai, Thomson Reuters data showed.

The Chinese home appliance industry is battling higher labour and operating costs and Chinese consumers are unwilling to pay a premium for local products.

Despite the sluggish retail market, KKR believes Qingdao Haier's stock is undervalued, and sees room for growth in China's home appliances market, according to a source with knowledge of the firm's investment strategy.

"If you look at the market today, the penetration of white goods is about the same level as Japan and the U.S. 30 years ago," the source said.

The source added that in China, 87 out of every 100 homes has a fridge, but the ratio in the US is 150 fridges to every 100 homes. KKR also expects to help Qingdao Haier with acquisitions, the source added.

KKR said last week it would lead a joint venture with China Modern Dairy Holdings Ltd and a Chinese private equity firm that would invest $140 million in two large dairy farms.

KKR said on Friday it had agreed to pay $1.7 billion for Panasonic Corp's healthcare unit, in the largest private equity offer in Asia this year.

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UPDATE 6-Penney stock plunges on share sale, lower cash forecast

By Phil Wahba and Olivia Oran

Sept 27 (Reuters) - J.C. Penney Co Inc's decision to shore up its cash reserves by issuing almost $1 billion in new shares sent its stock tumbling more than 13 percent Friday.

Earlier in the day, the struggling U.S. department store chain had cut its forecast of year-end cash reserves, suggesting that it is burning through money faster than expected.

Penney said the 84 million shares in the offering had priced at $9.65 each. Underwriters have the option to buy another 12.6 million shares.

The board decided Thursday afternoon to sell shares after discussing in recent weeks various options to raise cash. As of Sept. 6, Penney had total debt of $5.82 billion, according to the stock offering prospectus, making it difficult to raise new money through debt.

"We could not risk losing the confidence of our Associates or our supplier partners, both of whom are paramount to our long-term success," Chief Executive Myron Ullman said in a note sent to all store employees on Friday and obtained by Reuters.

Penney spokeswoman Kristin Hays said the company was concerned that "shares could not handle much more pressure" if the company wanted to be able to sell new stock at some point.

The company has been struggling to improve sales after a failed attempt by Ullman's predecessor Ron Johnson to take the store more up-market sent sales down 25 percent in 2012.

On Friday, in their first session since the sale was announced, shares closed at $9.05, down from a February 2007 high of $87.18. About 35 percent of Penney shares are held short by investors betting on its decline, making them very volatile.

Penney said in the prospectus it would have about $1.3 billion in cash by the end of the year. In August, it had forecast $1.5 billion.

"While an equity raise improves (near-term) liquidity, we remain concerned that JCP will continue to burn cash in '14 and beyond," UBS analyst Michael Binetti, who has a "sell" rating on the stock, wrote in a note.

UBS' Binetti said the pre-holiday capital-raising, along with cautious comments from other retailers, increased concerns that near-term trends were not improving as anticipated.

So far some financing companies, known as factors, are not changing terms on the short-term loans they provide Penney suppliers.

Michael Stanley, the managing director at Rosenthal & Rosenthal, a large factor, said his firm has kept approving orders to Penney.

"We feel they have enough liquidity, especially with this share sale," Stanley said.

A TURBULENT WEEK

Penney's offering confirmed an exclusive Reuters report on Wednesday that the company aimed to raise as much as $1 billion in new equity to build its cash reserves.

Penney on Thursday denied a CNBC report that said Ullman had told investors there was no need to raise more money before the end of the fourth quarter, which ends in early February.

The company's shares had climbed on the CNBC report.

Earlier this year, Penney had a $2.25 billion loan arranged by Goldman Sachs, which is also the sole book-running manager for the stock offering.

Goldman said in a research note this week that poor business fundamentals, the need to rebuild inventory of goods popular with long-time customers and the weak performance of its home goods department would likely put pressure on Penney's liquidity.

Penney's shares have been on a wild ride in the past three days: plunging on the Goldman research, and declining further on the Reuters report about a capital raising, before recovering some of those losses on the company statement about trading conditions and the CNBC report. The shares fell again on the share sale announcement on Thursday, and continued their slide on Friday.

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UPDATE 1-ANZ, Singapore's UOB eye Hong Kong's Wing Hang Bank -sources

HONG KONG, Sept 28 | Sat Sep 28, 2013 1:43am EDT

HONG KONG, Sept 28 (Reuters) - Singapore's United Overseas Bank Ltd and Australia & New Zealand Banking Group Ltd are considering a bid for Hong Kong's Wing Hang Bank Ltd, according to people familiar with the matter.

Wing Hang, with a market capitalisation of $4.7 billion, announced earlier this month that its controlling shareholders had received preliminary offers from independent third parties to purchase their shares in the bank. It did not name the bidders.

People familiar with the matter told Reuters on Saturday that ANZ and UOB were among the companies considering a bid for the Hong Kong bank. The Wall Street Journal also cited people familiar with the matter as saying UOB and ANZ had shown interest.

Wing Hang Bank is the second family-run Hong Kong lender to get a takeover offer since August. Chong Hing Bank Ltd said that it had received offers from multiple parties, without naming the suitors.

A UOB spokesman on Saturday said the bank does not comment on market speculation. An ANZ spokesman said: "From time to time we look at opportunities as part of our super regional strategy however we don't comment on market speculation."

Wing Hang Bank could not be reached for comment.

China's economic clout and the growth of the offshore yuan fixed income market has made Hong Kong's mid-sized banks increasingly attractive to foreign lenders seeking a gateway to the mainland market and seeking growth outside home markets.

New capital rules and competition from bigger rivals like HSBC Plc and Standard Chartered Bank Plc have also given controlling shareholders of Hong Kong banks more incentive not to hold out for more lofty premiums that other city lenders commanded before the global financial crisis.

Hong Kong's Fung family, along with BNY International Financing Corp, control about 45 percent of the Wing Hang Bank, whose stock has soared since takeover talk started.

The Wall Street Journal reported earlier this month that ANZ dropped its over $900 million bid for the main Australian businesses of British lender Lloyds Banking Group.

ANZ was among four parties shortlisted to buy Lloyds's asset finance and commercial lending units but withdrew on concerns about its ability to integrate the units with its Esanda financing arm, the Journal reported, citing people familiar with the matter.

ANZ, Australia's third largest bank by value, has been seeking to expand its business across Asia for several years, a vision held by current CEO Mike Smith, a former top executive at HSBC.

Banks across Asia, from Japan to Singapore, are also aggressively expanding beyond their borders, looking for higher growth markets.

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UPDATE 1-Top SEC lawyer on 'Fabulous Fab' trial to depart agency

By Sarah N. Lynch

WASHINGTON, Sept 27 (Reuters) - Matthew Martens, the top trial lawyer at the U.S. Securities and Exchange Commission who led the agency to victory in its blockbuster civil fraud case against Goldman Sachs Vice President Fabrice Tourre, is leaving the SEC at the end of September.

The SEC said its current deputy chief litigation counsel, Matthew Solomon, will take over the top position.

The SEC's case against Tourre was one of the most high-profile matters to emerge out of the 2007-2009 financial crisis. At the heart of the SEC's case was whether Tourre had misled investors in a synthetic collateralized debt obligation (CDO) called Abacus 2007-AC1.

The SEC said Tourre, who once referred to himself as "the fabulous Fab" in an email, should have let investors know that Paulson & Co Inc, the hedge fund run by billionaire John Paulson, had helped choose the subprime mortgage securities underlying the CDO and was betting against it.

Leading up to the trial against Tourre, many critics openly questioned the strength of the SEC's case, saying the agency was wrong to target a low-level Goldman employee.

Goldman Sachs had previously settled the matter with the SEC for $550 million; no high-level executives were charged in the case.

Martens was able to convince a jury that Tourre was liable for fraud, marking what most consider to be the highlight of his three years working at the SEC.

Martens' plans to leave the SEC this fall were widely expected.

Reuters first reported in May, well before the Tourre trial began, that Martens was testing the waters for prospective employment at several law firms

At that time, he was inquiring internally about whether certain firms including Kirkland & Ellis; Paul, Weiss, Rifkind, Wharton & Garrison; WilmerHale; Latham & Watkins, and Cleary Gottlieb Steen & Hamilton were representing clients in SEC cases.

In some instances, Martens recused himself from working on those cases in order to comply with strict ethics rules that prevent employees from working on matters involving prospective employers.

The SEC's announcement on Friday did not say where Martens plans to go next. Martens declined to comment. A source familiar with the matter said he had not decided.

Solomon has served as second in command in the SEC's trial unit since June 2012.

Before working at the SEC, Solomon was a federal prosecutor for more than 10 years.

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UPDATE 1-Shares of Santander Brasil jump on $2.7 bln dividend plan

(Updates with share performance, analyst comments in paragraphs 1-5)

By Guillermo Parra-Bernal

SAO PAULO, Sept 27 (Reuters) - Banco Santander Brasil SA , seeking to jumpstart its flagging return on equity, will modify its capital structure by paying shareholders a one-off dividend of 6 billion reais ($2.7 billion) and issuing foreign currency-denominated debt.

The plan will allow the Brazilian subsidiary of Spain's Banco Santander SA to tap a cheaper source of capital. The dividend payout will be followed by a sale of Tier I and II debt in the same amount that the parent company could subscribe to in its entirety.

Units of the São Paulo-based bank, a blend of common and preferred shares, jumped as much as 10 percent on the news. Friday's gain helped pare back Santander Brasil's year-to-date decline to 1.3 percent.

While the one-off dividend payout should improve Santander Brasil's return on equity readings, analysts were concerned the move could have an impact on earnings per unit. Santander Brasil's return on equity, a gauge of profitability that measures how well banks use shareholders' money, is the lowest among Brazil's largest listed lenders, mainly because the bank has lagged behind rivals in terms of lending growth, margin expansion and default controls.

"Without any additional change to underlying operations, the final impact on earnings per share and return on assets is negative, which could hurt prospects for the shares after the extraordinary dividend is paid out," Goldman Sachs Group analysts led by Carlos Macedo wrote in a client note.

Once among the world's most profitable companies, Brazilian lenders have struggled in recent years with a flagging economy, a decline in interest rates and the impact of competition between private-sector and state-run lenders that led to steep margin compression.

Changes in the bank's capital structure would leave Santander Brasil's regulatory capital ratio unchanged at 21.5 percent, although its Tier 1 ratio may fall by a full percentage point to 19.3 percent. Tier 1 capital consists primarily of common stock and retained earnings.

Santander Brasil by law has a capital structure independent of parent Santander, limiting the means by which it can return funds. Analysts have said the parent, Europe's largest lender, may need capital to offset losses incurred in recession-hit Spain.

"The goal of this is to augment the efficiency of the bank's capital structure and put it in line with the necessities and the realities of the market," the bank said in a securities filing late Thursday.

Santander Brasil has for years held capital in excess of central bank requirements. The plan also includes a reverse split of its common and preferred shares, with no impact to unit value. (Reporting by Guillermo Parra-Bernal; Writing by Reese Ewing; Editing by Christopher Cushing, David Holmes and Diane Craft)

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UPDATE 2-UK's Cameron speeds up launch of controversial housing plan

By William Schomberg and Estelle Shirbon

LONDON, Sept 28 (Reuters) - Britain's prime minister launched a critical week for his party's run-up to the 2015 elections by unexpectedly bringing forward the launch of a mortgage guarantee programme that critics say risks stoking a housing bubble.

Conservative leader David Cameron said on Saturday that the plan would be up and running next week, three months earlier than previously planned.

The "Help to Buy" plan is aimed at people who have been frozen out of the property market by the soaring size of deposits required to get a mortgage.

"Young people who've got a decent job and have got decent earnings - they cannot buy a house or a flat, because they have to have a 30,000-pound ($48,400), 40,000-pound or 50,000-pound deposit," Cameron said in a statement.

"Now, if you haven't got rich parents, you can't get that sort of money. So we're going to launch the Help To Buy Scheme - it's not coming in next year, it's coming in next week, because I'm passionate about helping people who want to own their own flat or home."

The initiative involves the government providing 12 billion pounds in guarantees to encourage lenders to provide mortgages of up to 95 percent of the value of properties being bought.

It had been due to launch in January and key details such as the fees banks will pay to participate have yet to be announced.

Cameron's announcement comes on the eve of the start of the Conservative Party's annual conference in Manchester. Such occasions are used by British political parties to make eye-catching announcements and this year offer the chance for them to set out their programmes before a general election due in 2015.

Earlier this month, opposition leader Ed Miliband said a government run by his centre-left Labour Party would freeze energy bills for 20 months, a move aimed at winning over British voters, many of whom have seen their living standards fall during the slow economic recovery from the financial crisis.

Signs that Britain's economy is on the mend had boosted the Conservatives' standing among voters, but Labour's support has risen in opinion polls since the announcement by Miliband. A YouGov poll for the Sunday Times puts Labour at 42 percent, with the Conservatives at 31 percent. Cameron's coalition partners, the Liberal Democrats, languish at 9 percent.

CONCERNS IN THE COALITION

Seeking to give a boost to homeownership carries risks for the government. Since the mortgage guarantee component of Help to Buy was announced in March, house prices have picked up, raising questions about whether it is still needed.

Britain's business minister, Vince Cable, a Liberal Democrat, has expressed his concerns about the programme.

House prices rose at their fastest pace in more than three years in September, one set of housing data showed on Friday. In London, prices have jumped by nearly 10 percent over the past 12 months, although other regions have seen barely any increase

In a nod to the concerns about a new boom, Britain's finance minister, George Osborne, last week asked the Bank of England to keep a closer eye on the impact of Help to Buy.

Both Osborne and Bank of England Governor Mark Carney have pointed to activity in the housing market that is well below its pre-crisis peak as a sign that there is no new housing boom.

Ed Balls, Labour's would-be finance minister, responded to Cameron's announcement on Saturday by saying the government should bring forward investment to build more affordable homes, denouncing what he said was the lowest rate of house-building since the 1920s.

"Unless David Cameron acts now to build more affordable homes, as Labour has urged, then soaring prices risk making it even harder for first time buyers to get on the housing ladder, Balls said in a statement.

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UPDATE 2-U.S. Treasury official named lead on Detroit bankruptcy

By Joseph Lichterman

DETROIT, Sept 27 (Reuters) - The executive director of President Barack Obama's Council on Jobs and Competitiveness was named on Friday to manage more than $300 million in federal, state and private aid packages given to Detroit, which has filed for bankruptcy.

Gene Sperling, director of the president's National Economic Council, announced the appointment of Don Graves, who is also a deputy assistant secretary at Treasury, during a press conference with Obama administration, state and city officials in Detroit.

The aid package is a far cry from the $80 billion in financing extended to the U.S. auto industry during the 2008-2009 financial crisis that saved General Motors Co and Chrysler Group LLC from collapse.

But the White House has already ruled out a similar bailout for the city of 700,000, a reflection of both a more constrained federal budget and increased infighting in Washington.

"It's no secret that things have never been tighter in Washington," Sperling said, making note of gridlock in Congress and the potential shutdown of the government next week.

Detroit became the largest U.S. city ever to file for bankruptcy a little more than two months ago and reported $18.5 billion in debt. The city, led by Emergency Manager Kevyn Orr, has been unable to provide many basic services to residents.

A large portion of the more than $300 million in aid, which comes from federal, state and private sources, was previously earmarked for Detroit, but delivery of the funds was slowed by red tape and other issues.

"Put the bankruptcy aside, we're talking about reinvestment and revitalization for the city and getting at some long standing issues that everyone has said needs to be gotten at for the better part of at least a decade," Orr told reporters after the meeting.

Orr said the city also plans to revamp the way it manages its federal grants and has hired consultants to improve the process. The White House's chief technology officer and a team is to be sent to Detroit to improve Detroit's outdated IT systems.

Sperling and cabinet officials discussed the proposals in a closed-door meeting at Wayne State University with Orr, Michigan's Republican Governor Rick Snyder, the city's mayor, Dave Bing, and members of the state's congressional delegation.

The Federal Emergency Management Agency pledged to expedite $25 million that will allow the city to hire 150 new firefighters and purchase equipment to prevent and detect arson.

The U.S. Department of Transportation also pledged nearly $140 million to assist the city's transportation system.

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UPDATE 2-U.S. FHA to tap $1.7 billion in taxpayer funds

* FHA needs cash to maintain required capital cushion

* Shortfall stems from loans backed from 2007 to 2009

* Republicans: FHA was irresponsible in propping up market

* White House predicted $943 million draw in April

* Obama administration officials see finances improving

By Margaret Chadbourn

WASHINGTON, Sept 27 (Reuters) - The U.S. Federal Housing Administration said on Friday it will draw $1.7 billion in cash from the U.S. Treasury to help cover losses from troubled loans, marking the first time in its 79-year history that it has needed aid.

The agency, which offers mortgage lenders guarantees against homeowner defaults, told Congress it does not have enough cash to cover projected losses on the loans it backs. It said it needs the subsidy to shore up its insurance fund to maintain a required capital cushion.

White House officials projected in April that the FHA would face a shortfall of $943 million in the fiscal year that ends on Monday, but rising mortgage rates cut its loan volume and curbed a hoped-for increase in revenues from higher loan premiums.

FHA Commissioner Carol Galante said her agency was required to draw money based on loan performance assumptions that were locked down in December, but she said those assumptions did not capture improvements that would have likely canceled out a need for aid.

"In the next few months, we expect updated data and economic forecasts to reflect what we already know to be true - the health of the (FHA insurance) fund has improved significantly," she told lawmakers in a letter.

The cash infusion marks what could be considered a book end to the 2007-2009 financial crisis, which started with the U.S. subprime mortgage crisis.

Most of the damage to the FHA was caused by loans that were made during those years as the real estate market cratered and it expanded its book of business to support the mortgage market. Officials said those loans are projected to cost the agency $70 billion.

Loans originated in the past few years have performed much better. The number of loans seriously delinquent at the end of July was 15 percent below the level of a year earlier and at the lowest point in almost three years.

In addition, the amount of money the FHA is recovering on foreclosed properties is up sharply. "It is estimated that the improvement in recovery rates alone is worth more than $5 billion," Galante said.

POLITICAL TENSIONS

While the FHA had been expected to draw from the Treasury, the size of the cash infusion, which Republicans have dubbed a bailout, will heighten the political tension over the government's pervasive role in the mortgage market.

Taxpayers have already propped up mortgage finance giants Fannie Mae and Freddie Mac to the tune of $187.5 billion, although those government-controlled companies are now profitable and will have returned $146 billion in dividends to the Treasury by the end of the month.

Including Fannie Mae and Freddie Mac, federal housing agencies support about nine in 10 new U.S. mortgages.

Idaho Republican Senator Mike Crapo said the announcement reinforced the need for Congress to revamp the housing finance system to reduce the government's footprint.

"Taxpayer liability could come to fruition if we do not act on serious reform now," he said.

$30 BILLION ON HAND

The FHA said it has more than $30 billion in cash and investments on hand to pay potential claims, but that it does not have enough to meet a legally required 2 percent capital ratio, which is a measure of its ability to withstand losses.

The FHA has not met its capital ratio since 2009, but the ratio only sank below zero this budget year.

"Although this one-time transfer of funds from the Treasury is legally necessary, it's important to note that FHA is far from bankrupt," said Representative Maxine Waters, a California Democratic who supports programs that help low-income borrowers.

Since the cash draw from Treasury will not be disbursed by the FHA, it will not impact how quickly the government runs out of money to pay its bills under the nation's $16.7 trillion debt ceiling. In addition, the Treasury has the authority to take the $1.7 billion back once the FHA rebuilds its reserves.

After an independent audit in November found that its insurance fund could face losses as high as $16.3 billion, the FHA raised the amount it charges borrowers to insure mortgages against default and tightened underwriting. The changes, coupled with rising home prices, helped shrink the projected gap.

The FHA has said its cash needs were mainly driven by losses from reverse mortgages, which allow homeowners age 62 or older to withdraw equity and repay it only when their homes are sold. The agency, which is expected to spend $2.8 billion this year insuring reverse mortgages, backs 90 percent of such loans.

It has already announced new guidelines for potential reverse mortgage borrowers, including lower limits on the amount seniors can withdraw, higher mortgage insurance fees and tougher vetting of applicants. Those changes, however, do not go into effect until Tuesday.

Republicans have argued the FHA needs to take more aggressive action to protect taxpayers, including reducing maximum loan limits and raising minimum down payments.

The Obama administration contends some of those steps would undermine the agency's mission to provide credit to first-time home buyers and needy communities.

The FHA has played a critical role supporting the housing market by insuring mortgages for borrowers who make down payments of as little as 3.5 percent. The FHA insures about $1.1 trillion in mortgages and now backs about one third of all new loans used to purchase homes, up from about 5 percent in 2006.

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UPDATE 2-Vietnam Air to buy General Electric engines for 787s

NEW YORK, Sept 27 (Reuters) - Vietnam Airlines has agreed to order General Electric engines to power its Boeing Co 787 Dreamliners, according to Vietnamese government officials.

The number of engines in the order could not be learned. The order is due to be formally announced next month in Brunei, Vu Huy Hoang, Minister of Industry and Trade for Vietnam, told Reuters.

For the 787 deal, "President Obama wants to witness the signing ceremony in Brunei," Hoang said.

General Electric declined to comment. Boeing said that Vietnam Airlines has existing orders for eight 787s and orders for another 11 787s through leasing companies.

The Vietnamese Prime Minister Nguyen Tan Dung, speaking through a translator, said he wanted to formally announce the details of the engine deal on Friday, but the White House had asked for the delay until October.

Separately, Dung said Vietnamese budget airline VietJet is in talks to buy Boeing 737 airplanes and that the contract should be signed soon.

"The initial agreement, which is of Boeing 737 between VietJet and Boeing, is also another contract to be signed shortly," Dung said.

The officials spoke at a Vietnam investment forum in New York sponsored by the International Economic Alliance and the Asia Society.

The prime minister's comments highlighted questions around Vietnam's expansion into regional aviation markets, coming just days after the country's first privately owned airline placed a $9 billion Airbus order. Following the comments about a possible Boeing purchase by VietJet, the airline itself dampened the prospect of an imminent order with Boeing.

VietJet Managing Director Luu Duc Khanh said after signing the $9 billion Airbus order in Paris on Wednesday that the airline had so far opted to use a single aircraft type. A spokeswoman for the airline reaffirmed the comments on Friday.

Most low-cost carriers prefer to stick to one type of aircraft to contain the cost of training and spare parts, but long delivery lead times in the wake of a boom in aircraft orders has forced some to split their orders.

According to Khanh, Vietnam has 0.7 passenger aircraft for every 1 million people in its population, compared with 7 in Malaysia and 15 in Australia.

Vietnam Airlines, the traditional national flag carrier, has a mixed fleet of Airbus and Boeing jets and has ordered both the Boeing 787 and its future competitor, the Airbus A350.

It has also expressed interest in the Airbus A380 superjumbo.

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UPDATE 2-Petrobras IBV Brazil offshore oil find 'beautiful' -CEO

* Reuters reported on Thursday that area holds more than 1 bln barrels

* Petrobras declines to give estimate for discovery size

* CEO says Sergipe offshore to produce oil in 2018

By Jeb Blount

RIO DE JANEIRO, Sept 27 (Reuters) - Brazil's state-led oil company, Petroleo Brasileiro SA, and its Indian partners have made a "beautiful" oil discovery off Brazil's northeast coast and it will produce a minimum 100,000 barrels of petroleum a day starting in 2018, the company's chief executive officer said on Friday.

Maria das Graças Foster, the chief executive, declined to say how big the discovery is but said it was an important new oil "province" for Brazil and that its large potential reserves would create a rush of jobs and activity to the area that will need to be managed carefully.

On Thursday, Reuters exclusively reported that the discovery, centered on the SEAL-11 offshore exploration block, likely holds more than 1 billion barrels of oil and that the region will soon become Brazil's biggest new oil frontier.

The SEAL-11 block is 60 percent-owned by Petrobras and 40 percent-owned by IBV Brasil, a 50-50 joint venture between India's Bharat Petroleum Corp (BPCL) and Videocon Industries Ltd.

"In 2008 we decided to do a very extensive investigation of the area, and the results we have got have been very good," Foster told reporters at company headquarters in Rio de Janeiro. "This is a beautiful discovery, beautiful discoveries."

In addition to light, high-quality crude oil, the region has important quantities of gas, she added.

Two prospects in the area, known as Farfan and Muriu, are expected to be developed as a single or integrated unit, with at least one floating production, storage and offloading ship (FPSO) producing oil and gas from the area in 2018, Foster said.

Foster said that was the minimum outlook for the area based on spending in the company's $237 billion 2013-2017 investment plan drawn up before the latest drilling and tests in the area.

If confirmed, the new find could make the region the country's biggest new oil frontier since the government unveiled the massive subsalt discoveries off the coast of Rio de Janeiro and Sao Paulo states in 2007.

REFINERY PLANS

Foster also said that Petrobras is totally reforming its plans to build two low-sulfur diesel refineries in Brazil's northeast. The so-called premium refineries planned for the states of Maranhao and Ceara were showing signs they would not be profitable.

The Maranhao refinery is expected to cost about $20 billion to build.

Petrobras, however, has reworked the projects with the help of U.S. based consultants, Foster said, and those projects are now looking stronger. The company hopes to start putting the refineries out to tender as early as March, she said.

The company is also in talks with a Chinese company to take a stake in the Maranhao project, Foster said. The project could lead to the Chinese partner taking a majority stake, she added.

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Chattanooga Update: What you need to know today

Harrison Keely is a web producer and live blogger for the Times Free Press. He also handles social media and oversees the paper’s Facebook and Twitter pages. He joined the Chattanooga Times Free Press as a reporter in 2010. Harrison previously served as managing editor of the Smoky Mountain Sentinel in western North Carolina and as a business reporter for the Washington Times in Washington, D.C. He graduated from Lee University in 2009 where he ...

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