Swiss spy agency warns U.S., Britain about huge data leak

ZURICH (Reuters) – Secret information on counter-terrorism shared by foreign governments may have been compromised by a massive data theft by a senior IT technician for the NDB, Switzerland‘s intelligence service, European national security sources said.

Intelligence agencies in the United States and Britain are among those who were warned by Swiss authorities that their data could have been put in jeopardy, said one of the sources, who asked for anonymity when discussing sensitive information.

Swiss authorities arrested the technician suspected in the data theft last summer amid signs he was acting suspiciously. He later was released from prison while a criminal investigation by the office of Switzerland’s Federal Attorney General continues, according to two sources familiar with the case.

The suspect’s name was not made public. Swiss authorities believe he intended to sell the stolen data to foreign officials or commercial buyers.

A European security source said investigators now believe the suspect became disgruntled because he felt he was being ignored and his advice on operating the data systems was not being taken seriously.

Swiss news reports and the sources close to the investigation said that investigators believe the technician downloaded terrabytes, running into hundreds of thousands or even millions of printed pages, of classified material from the Swiss intelligence service’s servers onto portable hard drives. He then carried them out of government buildings in a backpack.

One of the sources familiar with the investigation said that intelligence services like the U.S. Central Intelligence Agency and Britain’s Secret Intelligence Service, also known as MI6, routinely shared data on counter-terrorism and other issues with the NDB. Swiss authorities informed U.S. and British agencies that such data could have been compromised, the source said.

News of the theft of intelligence data surfaced with Switzerland’s reputation for secrecy and discretion in government and financial affairs already under assault.

Swiss authorities have been investigating, and in some cases have charged, whistleblowers and some European government officials for using criminal methods to acquire confidential financial data about suspected tax evaders from Switzerland’s traditionally secretive banks.

The suspect in the spy data theft worked for the NDB, or Federal Intelligence Service, which is part of Switzerland’s Defense Ministry, for about eight years.

He was described by a source close to the investigation as a “very talented” technician and senior enough to have “administrator rights,” giving him unrestricted access to most or all of the NDB’s networks, including those holding vast caches of secret data.

Swiss investigators seized portable storage devices containing the stolen data after they arrested the suspect, according to the sources. At this point, they said, Swiss authorities believe that the suspect was arrested and the stolen data was impounded before he had an opportunity to sell it.

However, one source said that Swiss investigators could not be positive the suspect did not sell or pass on any of the information before his arrest, which is why Swiss authorities felt obliged to notify foreign intelligence partners their information may have been compromised.

Representatives of U.S. and British intelligence agencies had no immediate response to detailed queries about the case submitted by Reuters, although one U.S. official said he was unaware of the case.

SECURITY PROCEDURES QUESTIONED

Swiss Attorney General Michael Lauber and a senior prosecutor, Carolo Bulletti, announced in September that they were investigating the data theft and its alleged perpetrator. A spokeswoman for the attorney general said she was prohibited by law from disclosing the suspect’s identity.

A spokesman for the NDB said he could not comment on the investigation.

At their September press conference, Swiss officials indicated that they believed the suspect intended to sell the data he stole to foreign countries. They did not talk about the possible compromise of information shared with the NDB by U.S. and British intelligence.

A European source familiar with the case said it raised serious questions about security procedures and structures at the NDB, a relatively new agency which combined the functions of predecessor agencies that separately conducted foreign and domestic intelligence activities for the Swiss government.

The source said that under the NDB’s present structure, its human resources staff – responsible for, among other things, ensuring the reliability and trustworthiness of the agency’s personnel – is lumped together organizationally with the agency’s information technology division. This potentially made it difficult or confusing for the subdivision’s personnel to investigate themselves, the source said.

According to the source, investigators now believe that in the months before his arrest, the data theft suspect displayed warning signs that should have been spotted by his bosses or by security officials.

The source said that the suspect became so disgruntled earlier this year that he stopped showing up for work.

However, according to Swiss news reports, the NDB did not realize that something was amiss until the largest Swiss bank, UBS, expressed concern to authorities about a potentially suspicious attempt to set up a new numbered bank account, which then was traced to the NDB technician.

A Swiss parliamentary committee is now conducting its own investigation into the data theft and is expected to report next spring. Investigators are known to be concerned that the NDB lacks investigative powers, such as to search premises or conduct wiretaps, which are widely used by counter-intelligence investigators in other countries.

(Reporting by Mark Hosenball; Editing by Mark Heinrich)

Tech News Headlines – Yahoo! News

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Jennifer Aniston & Justin Theroux Throw Star-Studded Holiday Party

12/04/2012 at 12:00 PM EST

From left: Christine Taylor, Jennifer Aniston, Justin Theroux and Ben Stiller on Nov. 15

Jeff Vespa/WireImage

There was no lack of excitement in Jennifer Aniston and Justin Theroux's household over the weekend.

The recently-engaged pair kicked off December with a tree-trimming party, which has been an annual tradition for Aniston, 43.

On Sunday, pals including, Demi Moore, Ellen DeGeneres, Portia de Rossi, Ben Stiller, Christine Taylor, Tobey Maguire, Jennifer Meyer and some of Aniston's employees came out to the couple's Beverly Hills rental house for a family-friendly fete.

"The party was for both adults and children," a source tells PEOPLE. "Jen loves having children around and she always has fun activities planned for them. While the adults mingled, the younger guests were able to color and play games."

Adds the source: "Jen always puts a lot of effort into planning her holiday party. It's a thank you party for her employees, and she always gives them thoughtful gifts. Jen always asks her celebrity friends for charity donations instead of personal gifts."

Picking out a Christmas tree is no light matter for Aniston, who selected a 10 ft. noble fir at Mr. Greentrees in Beverly Hills.

"It's a tradition for her," another source says. "She is very specific about the tree that she wants. For the second year in a row, she picked out a tree with [Justin]. She seemed very excited and happy about the tree. [Justin] was very sweet to her and let her take her time to find the perfect tree. She found a beautiful one that she had delivered."

As for the upbeat couple, they "are doing really well together," the source says. "Jen always seems so happy. Justin takes great care of her. ... They are both looking forward to a break. They had an intense fall with a lot of work."

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Tapping citizen-scientists for a novel gut check

WASHINGTON (AP) — The bacterial zoo inside your gut could look very different if you're a vegetarian or an Atkins dieter, a couch potato or an athlete, fat or thin.

Now for a fee — $69 and up — and a stool sample, the curious can find out just what's living in their intestines and take part in one of the hottest new fields in science.

Wait a minute: How many average Joes really want to pay for the privilege of mailing such, er, intimate samples to scientists?

A lot, hope the researchers running two novel citizen-science projects.

One, the American Gut Project, aims to enroll 10,000 people — and a bunch of their dogs and cats too — from around the country. The other, uBiome, separately aims to enroll nearly 2,000 people from anywhere in the world.

"We're finally enabling people to realize the power and value of bacteria in our lives," said microbiologist Jack Gilbert of the University of Chicago and Argonne National Laboratory. He's one of a team of well-known scientists involved with the American Gut Project.

Don't be squeamish: Yes, we share our bodies with trillions of microbes, living communities called microbiomes. Many of the bugs, especially those in the intestinal tract, play indispensable roles in keeping us healthy, from good digestion to a robust immune system.

But which combinations of bacteria seem to keep us healthy? Which ones might encourage problems like obesity, diabetes or irritable bowel syndrome?

And do diet and lifestyle affect those microbes in ways that we might control someday?

Answering those questions will require studying vast numbers of people. Getting started with a grassroots movement makes sense, said National Institutes of Health microbiologist Lita Proctor, who isn't involved with the new projects but is watching closely.

After all, there was much interest in the taxpayer-funded Human Microbiome Project, which last summer provided the first glimpse of what makes up a healthy bacterial community in a few hundred volunteers.

Proctor, who coordinated that project, had worried "there would be a real ick factor. That has not been the case," she said. Many people "want to engage in improving their health."

Scott Jackisch, a computer consultant in Oakland, Calif., ran across American Gut while exploring the science behind different diets, and signed up last week. He's read with fascination earlier microbiome research: "Most of the genetic matter in what we consider ourselves is not human, and that's crazy. I wanted to learn about that."

Testing a single stool sample costs $99 in that project, but he picked a three-sample deal for $260 to compare his own bacterial makeup after eating various foods.

"I want to be extra, extra well," said Jackisch, 42. Differing gut microbes may be the reason "there's no one magic bullet of diet that people can eat and be healthy."

It's clear that people's gut bacteria can change over time. What this new research could accomplish is a first look at how different diets may play a role, said American Gut lead researcher Rob Knight of the University of Colorado, Boulder.

One challenge is making sure participants don't expect that a map of their gut bacteria can predict their future health, or suggest lifestyle changes, anytime soon.

"I understand I'm not going to be able to say, 'Oh, my gosh, I'll be susceptible to this,'" said Bradley Heinz, 26, a financial consultant in San Francisco. He is paying uBiome $119 to analyze both his gut and mouth microbiomes; just the gut is $69.

"The more people that participate, the more information comes out and the more that everybody benefits," he added.

Participants can sign up for either project via the social fundraising site Indiegogo.com over the next month. They also can send scrapings from the skin, mouth and other sites, to analyze that bacteria. Sign up enough family members or body sites, or be tracked over time, and the price can rise into the thousands. American Gut researchers plan some free testing for those who can't afford the fees, to try to increase the experiment's diversity.

Don't forget the pets: "We sleep with them, play with them, they often eat our food," said American Gut co-founder Jeff Leach, an anthropologist. What bacteria we have in common is the next logical question.

Already, American Gut researchers are preparing to compare what they find in the typical U.S. gut with a few hundred people in rural Namibia, who eat what's described as hunter-gatherer fare. Also, Leach will spend three months living in Namibia next year, and is storing his own stool samples for before-and-after comparison.

But diet isn't the only factor. Your bacterial makeup starts at birth: Babies absorb different microbes when they're born vaginally than when they're born by C-section, a possible explanation for why cesareans raise the risk for certain infections. Taking antibiotics, especially in early childhood, can alter this teeming inner world, and it's not clear if there are lasting consequences.

Then there's your environment, such as the infections spread in hospitals. In February, a new University of Chicago hospital building opens and Gilbert will test the surfaces, the patients and their health workers to see how quickly bad bugs can move in and identify which bacteria are protective.

Whatever the findings, all the research marks "a huge teachable moment" about how we interact with microbes, Leach said.

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EDITOR'S NOTE — Lauran Neergaard covers health and medical issues for The Associated Press in Washington.

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Online:

www.indiegogo.com/americangut

www.indiegogo.com/ubiome

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Wall Street flat, awaits movement on fiscal cliff talks

NEW YORK (Reuters) - Stocks were little changed in early trading on Tuesday as the market remains hostage to negotiations in Washington on how to avert a "fiscal cliff" that could push the U.S. economy into recession.

Republicans in Congress proposed steep spending cuts to bring down the budget deficit on Monday but gave no ground on President Barack Obama's call to raise taxes on the wealthiest Americans, and the proposal was quickly dismissed by the White House.

Headlines about the back-and-forth preliminary proposals by Republicans and Democrats have fixated the market. Still, many investors expect the two sides to come up with a deal before the year-end deadline, which could trigger a rally in equities.

"Support (for the market) is based on a belief that Washington will come to some agreement before we go over the fiscal cliff," said Art Hogan, managing director of Lazard Capital Markets in New York.

Hogan added, "On the first show of flexibility from either side, we'll get a relief rally."

Despite sudden moves in the market on the latest headlines about the fiscal cliff in recent days, a measure of investor anxiety has held surprisingly flat.

The CBOE volatility index <.vix>, a gauge of market anxiety, slipped to 16 and has not traded above 20 since July following its 2012 high near 28 hit in June. The VIX's 10-day Average True Range, an internal volatility measure, is at its lowest since early 2007.

Obama will meet with U.S. governors at the White House on Tuesday to talk about the fiscal cliff, a $600 billion package of tax hikes and federal spending cuts that would begin January 1.

The president is also expected to talk about the fiscal cliff during an interview scheduled for 12:30 p.m. (1730 GMT) on Bloomberg TV.

Coach became the latest company to advance the date of its next dividend payment. Expectations of higher taxes on dividends kicking in in 2013 have pushed many companies to pay special dividends this year or advance their next pay-back to investors.

The Dow Jones industrial average <.dji> rose 27.92 points, or 0.22 percent, to 12,993.52. The S&P 500 <.spx> edged up 0.44 points, or 0.03 percent, to 1,409.90. The Nasdaq Composite <.ixic> fell 4.44 points, or 0.15 percent, to 2,997.76.

Toll Brothers shares rose 1.8 percent to $33.01 after the largest U.S. luxury homebuilder reported a higher quarterly profit and said new orders rose sharply.

MetroPCS Communications shares dropped 6.5 percent to $10.07 after Sprint Nextel appeared unlikely to make a counter-offer for the wireless service provider.

Shares of Pep Boys-Manny Moe and Jack were down 12.4 percent at $9.36 a day after the release of the auto parts retailer's results.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

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NATO warns Syria not to use chemical weapons

BEIRUT (Reuters) - NATO told Syrian President Bashar al-Assad on Tuesday that any use of chemical weapons in his fight against encroaching rebel forces would be met by an immediate international response.

The warning from NATO Secretary-General Anders Fogh Rasmussen came as U.S. government sources said Washington had information that Syria was making what could be seen as preparations to use its chemical arsenal.

Syrian forces meanwhile bombarded rebel districts near Damascus in a sustained counter-attack to stem rebel gains around Assad's power base.

Syrian state media said a rebel mortar attack on a school had killed 28 students and a teacher.

International concern over Syria's intentions has been heightened by reports that its chemical weapons have been moved and could be prepared for use.

"The possible use of chemical weapons would be completely unacceptable for the whole international community and if anybody resorts to these terrible weapons I would expect an immediate reaction from the international community," Rasmussen told reporters at the start of a meeting of alliance foreign ministers in Brussels.

The chemical threat made it urgent for the alliance to send Patriot anti-missile missiles to Turkey, Rasmussen said.

The French Foreign Ministry referred to "possible movements on military bases storing chemical weapons in Syria" and said the international community would react if the weapons were used.

U.S. President Barack Obama on Monday told Assad not to use chemical weapons, without saying how the United States might respond. The Foreign Ministry in Damascus said it would never use such weapons against Syrians.

The U.S. has collected what has been described as highly classified intelligence information demonstrating that Syria is making what could be construed as preparations to use elements of its extensive chemical weapons arsenal, two U.S. government sources briefed on the issue said.

One of the sources said that there was no question that the US "Intelligence community" had received information pointing to "preparations" under way in Syria related to chemical weapons. The source declined to specify what kind of preparations had been reported, or how close the intelligence indicated the Syrians were to deploying or even using the weapons.

Western military experts say Syria has four suspected chemical weapons sites, and it can produce chemical weapons agents including mustard gas and sarin, and possibly also VX nerve agent. The CIA has estimated that Syria possesses several hundred liters of chemical weapons and produces hundreds of tonnes of agents annually.

FLIGHTS SUSPENDED

The fighting around Damascus has led foreign airlines to suspend flights and prompted the United Nations and European Union to reduce their presence in the capital, adding to a sense that the fight is closing in.

The army fightback came a day after the Syrian foreign ministry spokesman was reported to have defected in a potentially embarrassing blow to the government.

The Syrian Observatory for Human Rights said 200 people were killed across Syria on Monday, more than 60 of them around Damascus. Assad's forces bombarded districts to the south-east of the capital on Tuesday, near to the international airport, and in the rebel bastion of Daraya to the south-west.

Opposition footage posted on the Internet showed a multiple rocket launcher fire 20 rockets, which activists said was filmed at the Mezze military airport in Damascus.

Reuters could not independently verify the footage due to the government's severe reporting restrictions.

In central Damascus, shielded for many months from the full force of a civil war in which 40,000 people have been killed, one resident reported hearing several loud explosions.

"I have heard four or five thunderous blows. It could be barrel bombs," she said, referring to makeshift bombs which activists say Assad's forces have dropped from helicopters on rebel-dominated areas.

The state news agency said that 28 students and a teacher were killed near the capital when rebels fired a mortar bomb on a school. Rebels have targeted government-held residential districts of the capital.

The mainly Sunni Muslim rebel forces have made advances in recent weeks, seizing military bases, including some close to Damascus, from forces loyal to Assad, who is from Syria's Alawite minority linked to Shi'ite Islam.

Faced with creeping rebel gains across the north and east of the country, and the growing challenge around the capital, Assad has increasingly resorted to air strikes against the insurgents.

A diplomat in the Middle East said Syrian Foreign Ministry spokesman Jihad Makdissi had left the country and defected, while the British-based Observatory said it had information that he flew from Beirut on Monday afternoon heading for London.

In Beirut, a diplomat said Lebanese officials had confirmed that Makdissi spent several days in Beirut before leaving on Monday, but could not confirm his destination.

"We're aware of reports that he has defected and may be coming to the UK. We're seeking clarification," a Foreign Office spokeswoman in London said.

Makdissi was the public face to the outside world of Assad's government as it battled the 20-month-old uprising. But he had barely appeared in public for several weeks before Monday's report of his defection.

He had little influence in a system largely run by the security apparatus and the military. But Assad's opponents will see the loss of such a high profile figure, if confirmed, as further evidence of a system crumbling from within.

ESCALATED VIOLENCE

The United Nations and European Union both said they were reducing their presence in Syria in response to the escalated violence around the capital.

A spokesman for U.N. humanitarian operations said the move would not stop aid deliveries to areas which remained accessible to relief convoys.

"U.N.-funded aid supplies delivered through SARC (Syrian Arab Red Crescent) and other charities are still moving daily where the roads are open," Jens Laerke told Reuters in Geneva.

"We have not suspended our operation, we are reducing the non-essential international staff."

Three remaining international staff at the European Union delegation, who stayed on in Damascus after the departure of most Western envoys, crossed the border into Lebanon on Tuesday after pulling out of the Syrian capital.

(Additional reporting by David Brunnstrom in Brussels, Khaled Yacoub Oweis in Cairo, Erika Solomon, Oliver Holmes and Ayat Basma in Beirut, Mark Hosenball, Mohammed Abbas and David Cutler in London, and Stephanie Nebehay in Geneva)

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Nokia debunks rumor that it may be considering shift to Android

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Kate's Morning Sickness Is 'Acute'

By Simon Perry

12/03/2012 at 11:50 AM EST

Kate is still in the early stages of her pregnancy – less than 12 weeks – and already the next royal is making his or her presence dramatically known.

The Palace has described the Duchess of Cambridge's morning sickness as "acute" and she is at King Edward VII Hospital in Central London, joined by her husband, Prince William. According to a source at St James's Palace, Kate arrived at the hospital from her parents' new home in Bucklebury.

The source adds that the couple decided to "be open" about Kate's pregnancy because she was admitted to the hospital. But, since it's so early, "we aren't going into detail about the pregnancy itself," the source says.

Kate, 30, also has canceled her next three official engagements.

According to the Palace, Kate is suffering from hyperemesis gravidarum, characterized by severe and persistent nausea and vomiting during pregnancy. If untreated, the patient can suffer dehydration and dangerous weight loss.

This is the first child for the royal couple, who wed in April 2011.

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US envoy hits China's stand in UN climate talks

DOHA, Qatar (AP) — The United States on Monday challenged China's view of how to split the burden of curbing carbon emissions, saying the rich-poor divide in past climate agreements has no place in a future pact to fight global warming.

The U.S. envoy to international climate talks in Qatar, Todd Stern, said that the next climate deal must be based on "real-world" considerations, not "an ideology that says we're going to draw a line down the middle of the world."

Beijing wants to maintain a division between developed and developing nations, setting out softer emissions-cutting requirements for poorer countries. It notes that despite its roaring growth, millions of Chinese still live in poverty, and emission limits would slow the economic expansion that would improve their lot.

The climate pact is one of the key issues under discussion at the United Nations-led talks, which have entered their second week. Last year, governments agreed it should be adopted by 2015 and take effect five years later. The U.S. didn't join the only binding emissions agreement to date, the 1997 Kyoto Protocol, because it only covered industrialized nations and not major developing countries like India and China, which is now the world's biggest carbon emitter.

"It's going to be an enormously challenging, and I think enormously important, task to get this agreement right," Stern said.

The dispute will not be resolved in Doha, where negotiators are focusing on side issues including aid to help poor countries shift to renewable energy and protect themselves from rising sea levels and other effects of global warming.

They also plan to extend the Kyoto agreement, which expires this year, until a new treaty is in place. But several nations including Japan and New Zealand don't want to be part of the extension, meaning it will only cover European countries and Australia, which account for less than 15 percent of global emissions.

Even that has been complicated by disputes over whether emissions allowances granted to Poland and other eastern European countries to offset the early economic fallout after the collapse of communism should carry over into the second phase.

U.N. climate chief Christiana Figueres told reporters that people shouldn't expect the talks to yield success overnight because they deal with "a complete transformation of the economic structure of the world" — a shift from fossil fuels to renewable energy.

"What gives me frustration is the fact that we are very far behind what science tells us we should be doing," she said. "What gives me hope is the fact that ... over the past two to three years, this process has had more progress than it did in the past 10."

EU climate commissioner Connie Hedegaard said she would raise a host of side issues at a round-table discussion with environment ministers this week, including how to reduce subsidies for fossil fuels. Even though the G-20 group of industrialized and emerging nations called for the phasing-out of such subsidies already in 2009, the International Energy Agency recently said they grew 30 percent last year to $523 billion, primarily due to increases in the Middle East and Africa.

"It has been discussed for three years or more," Hedegaard said. "Now we need to start the phasing out."

In addition to the fuel subsidies in developing countries, rich nations in 2011 gave more than $58 billion in tax breaks and other production subsidies to oil and coal companies, according to a report Monday by Oil Change International, an advocacy group for clean energy. The U.S. figure was $13 billion.

Stern said that President Barack Obama has pushed for reducing fossil fuel subsidies domestically and internationally.

"It's difficult in other countries and it's difficult at home to carry it forward because there are a lot of entrenched interests," he said.

While he highlighted U.S. initiatives undertaken during Obama's first term — such as sharply increasing fuel efficiency standards for cars and trucks and investing in green energy — Stern noted that more ambitious climate legislation had stalled in Congress and that shifts in the U.S. climate position should not be expected following Obama's re-election.

"I don't know if I would think about this in terms of a different tone here," he said. "The U.S. has done quite significant things in the president's first four years."

Climate talks are scheduled to end on Friday.

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Wall Street up on China, but U.S. factory data pares gains

NEW YORK (Reuters) - The S&P 500 edged up to rise for a fourth straight day on Monday as upbeat Chinese data lifted sentiment, but weak U.S. factory numbers cut into gains.

Wall Street opened higher on that data but pared most of its gains after U.S. manufacturing unexpectedly contracted in November, falling to its lowest in over three years in a sign the sector may be struggling to gain traction.

Concerns over budget dealings in Washington are expected to keep traders cautious as political wrangling continues over how to deal with spending cuts and tax hikes scheduled to kick in next year that could tip the U.S. economy back into recession.

China's economy picked up in November even as a broader global recovery remains fragile, with factory activity patchy elsewhere in Asia as demand from the developed world remains weak.

"It's not clear exactly which numbers to focus on, but data is probably positive for markets starting from the China release last night," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

Adding to the upbeat market tone, Spain formally requested the disbursement more than $50 billion of European funds to recapitalize its crippled banking sector while Greece said it would spend 10 billion euros ($13 billion) to buy back bonds in a bid to reduce its ballooning debt.

"There's other positive news out of Europe with Greeks buying back their debt," Zemsky said. "Net-net the news cycle is positive for (equity) markets."

The Dow Jones industrial average <.dji> dipped 9.87 points, or 0.08 percent, to 13,015.71. The S&P 500 Index <.spx> gained 0.82 point, or 0.06 percent, to 1,417.00. The Nasdaq Composite <.ixic> added 6.24 points, or 0.21 percent, to 3,016.49.

The S&P 500 on Friday closed its fifth positive month in six and is up 8 percent since the end of May.

U.S. Treasury Secretary Timothy Geithner pushed Republicans on Sunday to offer specific ideas to cut the deficit and predicted that they would agree to raise tax rates on the rich to obtain a year-end deal to avoid the "fiscal cliff."

"Right now for both sides it's all about staying firm and determined to go to the very end," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York about the negotiations. "But we all know the stakes are high and (Congress) can't be that stupid as to induce another recession."

Singapore Airlines said it was in talks with interested parties to sell its 49 percent stake in British carrier Virgin Atlantic, with sources saying that Delta Air Lines was among the potential suitors. Delta shares fell 1.9 percent to $9.81.

Dell shares rose 6.3 percent to $10.25 after Goldman Sachs upgraded its view on the stock to "buy" from "sell."

(Reporting by Rodrigo Campos, editing by Kenneth Barry)

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Israel says will stick with settlement plan despite European pressure

JERUSALEM (Reuters) - Israel rejected concerted criticism from Europe on Monday over Prime Minister Benjamin Netanyahu's decision to expand settlement building after the United Nations' de facto recognition of Palestinian statehood.

Britain, France, Spain, Sweden and Denmark summoned the Israeli ambassadors in their capitals to hear appeals for Netanyahu to reverse course and deep disapproval of the plan to erect 3,000 more homes in the occupied West Bank and East Jerusalem.

An official in Netanyahu's office said Israel would not bend. "Israel will continue to stand by its vital interests, even in the face of international pressure, and there will be no change in the decision that was made," the official said.

Angered by the U.N. General Assembly's upgrading on Thursday of the Palestinians' status in the world body from "observer entity" to "non-member state", Israel said the next day it would build the new dwellings for settlers.

Such projects, on land Israel captured in a 1967 war, have routinely drawn world condemnation. Approximately 500,000 Israelis and 2.5 million Palestinians live in the two areas.

In a shift that raised the alarm among Palestinians and in world capitals, Netanyahu's pro-settler government also ordered "preliminary zoning and planning work" for thousands of housing units in areas including the "E1" zone east of Jerusalem.

Such construction in the barren hills of E1 has never been put into motion in the face of opposition from Israel's main ally, the United States. Building in the area could bisect the West Bank, cut off Palestinians from Jerusalem and further dim their hopes for a contiguous state.

The settlement plan, U.N. Secretary-General Ban Ki-moon said, would deal "an almost fatal blow" to a two-state solution to the Israeli-Palestinian conflict.

"We don't want to shift into sanctions mode," French President Francois Hollande told a news conference with Italian Prime Minister Mario Monti. "We are more focused on persuading."

Britain made clear it would not back such Israeli retaliation over the U.N. vote, which Palestinians sought after peace talks collapsed in 2010 over settlement building.

"We deplore the recent Israeli decision to build 3,000 new housing units and unfreeze development in the E1 block," a Foreign Office spokesman said. "We have called on the Israeli government to reverse the decision."

But a spokesman for British Prime Minister David Cameron played down what diplomatic sources said was the possibility of recalling Britain's ambassador in Tel Aviv, saying: "We are not proposing to do anything further at this stage".

France expressed "serious concerns" to the Israeli ambassador, reminding him that settlement building in occupied territories was illegal and an "obstacle" to reviving peace talks with the Palestinians.

A French Foreign Ministry official, responding to reports Paris might bring its Tel Aviv envoy home, said: "There are other ways in which we can express our disapproval."

Ahead of a Netanyahu visit this week, Germany, considered Israel's closest ally in Europe, urged it to refrain from expanding settlements, and Russia said it viewed the Israeli moves with serious concern.

RETALIATION

Israeli Finance Minister Yuval Steinitz said Israel could not have remained indifferent to the Palestinians' unilateral move at the United Nations.

"I want to tell you that those same Europeans and Americans who are now telling us 'naughty, naughty' over our response, understand full-well that we have to respond, and they themselves warned the Palestinian Authority," he said.

Palestinian chief negotiator Saeb Erekat said building in E1 "destroys the two-state solution, (establishing) East Jerusalem as the capital of Palestine and practically ends the peace process and any opportunity to talk about negotiations in the future".

The United States, one of the eight countries to vote alongside Israel against the Palestinian resolution at the General Assembly, has said the settlement plan was counterproductive to the resumption of direct peace talks.

Washington used the same argument in opposing the Palestinian initiative at the United Nations.

In Europe, only the Czech Republic voted against the status upgrade while many countries, including France, backed it. Netanyahu plans to visit Prague this week to express his thanks.

In the Gaza Strip, Sami Abu Zuhri, spokesman for the governing Hamas Islamist movement, called Israeli settlement "an insult to the international community, which should bear responsibility for Israeli violations and attacks on Palestinians".

In another blow to the Palestinian Authority, which exercises limited self-rule in the West Bank, Israel announced on Sunday it was withholding Palestinian tax revenues this month worth about $100 million, arguing the Palestinians owed $200 million to Israeli companies.

"These are not steps towards peace, these are steps towards the extension of the conflict," Spanish Foreign Minister Jose Manuel Garcia-Margallo said.

Only three weeks ago, Netanyahu won strong European and U.S. support for a Gaza offensive that Israel said was aimed at curbing persistent cross-border rocket fire.

Favored by opinion polls to win a January 22 national election, he brushed off the condemnation and complaints at home that he is deepening Israel's diplomatic isolation.

Netanyahu told his cabinet on Sunday that his government "will carry on building in Jerusalem and in all the places on the map of Israel's strategic interests".

But while his housing minister has said the government would soon invite bids from contractors to build 1,000 homes for Israelis in East Jerusalem and more than 1,000 in West Bank settlement blocs, the E1 plan is still in its planning stages.

"No one will build until it is clear what will be done there," the minister, Ariel Attias, said on Sunday.

Israel froze much of its activities in E1 under pressure from former U.S. President George W. Bush, and the area has been under the scrutiny of his successor, Barack Obama.

Most world powers consider Israel's settlements to be illegal. Israel cites historical and Biblical links to the West Bank and Jerusalem and regards all of the holy city as its capital, a claim that is not recognized internationally.

(Additional reporting by Crispian Balmer, Dan Williams, Nidal al-Mughrabi in Gaza, Jihan Abdalla in Ramallah, Steve Gutterman in Moscow, Gareth Jones in Berlin, John Irish and Elizabeth Pineau in Paris and Tim Castle in London; writing by Jeffrey Heller; editing by Philippa Fletcher)

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