Maoists holding Italian threaten 'extreme' step

Maoist guerrillas holding an Italian hostage said on Friday talks to free the kidnapped tour guide were a farce and threatened to take “an extreme step” unless the government releases a group of imprisoned rebels within four days.

The leftist fighters from Orissa did not specify what action they would take if their demands were not met but said they were not ready to release Paolo Bosusco, the Italian taken hostage three weeks ago.

“If the demands are not fulfilled we will be forced to take extreme step,” rebel leader Sabyasachi Panda said in an audio message aired on local TV stations, giving a 96 hour deadline.

An Italian foreign ministry spokesman said Rome was “concerned” at the news but had no further comment.

On Thursday, the Orissa state government said it would facilitate the release of 27 prisoners, including Panda’s wife, in exchange for Bosusco’s freedom and that of another hostage.

However, the list did not included the names of several prisoners the Maoists want released.

Also known as Naxals, the rebels have fought for decades in a wide swathe of central and eastern India including many resource-rich regions where tensions run high between poor farmers and industrial developers.

The government calls them the main internal security threat and an obstacle to higher growth and more jobs in Asia’s third-largest economy. Hundreds die annually in the conflict, although levels of violence have fallen in recent years.

Bosusco was seized in Orissa state, along with another Italian, Claudio Colangelo, on March 14, in what is believed to be the first time the rebels have targeted foreigners. Colangelo was handed to a group of reporters on March 25.

The fighters said they took the Italians because they were taking photographs of indigenous tribeswomen bathing in a river, an allegation Colangelo denied after his release.

On March 24, another group of Maoists kidnapped Jhina Hikaka, a state legislator, adding to the tension.

The rebels are insisting the government fulfil a total of 13 demands including an end to tourism in sensitive areas of the state and an end to police operations against them.

(Additional reporting by James Mackenzie in Rome; Editing by Frank Jack Daniel and Peter Graff)

The European Central Bank will hold interest rates at a record low of 1 percent on Wednesday and resist German pressure to flag an exit from its crisis-fighting mode as the euro zone recovery looks increasingly fragile and concerns grow about Spain.

Germany’s powerful Bundesbank has led a push by central bankers from the euro zone’s core for the ECB to begin preparing an exit from crisis measures that have seen it loosen the rules for tapping ECB funding operations.

The ECB has pumped over 1 trillion euros into the financial system with twin 3-year funding operations, or LTROs, to head off a credit crunch that late last year risked exacerbating the euro zone crisis and jeopardising the currency project.

The German-led group of policymakers is concerned that the wave of cash risks stoking inflation pressures.

Euro zone inflation eased to 2.6 percent in March – above the ECB target of just below 2 percent and higher than expected – but the renewed worries about Spain mean the ECB cannot afford to signal a rate rise or an exit from the funding measures.

“I think the situation is far too fragile for the ECB to meddle in exit strategies at the moment, especially if you look at Spain,” said Berenberg Bank’s Christian Schulz, a former ECB economist.

” It’s clear the downtrend in yields on sovereign bonds was triggered by the LTROs. If the ECB were to say ‘well, actually now we’re thinking about exiting this strategy’, that would cause concern over whether these low interest rates are sustainable. That’s why I think they’ll be extremely cautious.”

Returns on Spain’s 10-year bonds fell to 4.65 percent in early February, after the first of the twin LTRO operations, but have since risen back to about 5.4 percent.

A rise in government bond buys by banks in Spain and Italy in February showed they were plying the “Sarkozy trade” – a term adopted by markets after the French president suggested governments urge banks flush with ECB cash to buy their bonds.

This trade helped push down yields on Spanish and Italian government bonds, but the renewed concerns about the public finances in Spain – the euro zone’s fourth-largest economy – have sent them higher again.

At Wednesday’s post-rate decision news conference, ECB President Mario Draghi will be grilled on how worried he is about the possibility of Spain having to request a bailout after the rise in its refinancing costs.

Spain announced deep cuts to its central government budget on Friday as it battles to convince European partners and debt markets it can rein in its budget deficit in the face of growing complaints from the public. The savings for this year are around 2.5 percent of gross domestic product (GDP).

WORST OVER?

The ECB believes it has done as much as it can to fight the crisis and Draghi has put the onus firmly on governments to act. They responded last week by agreeing to raise their financial firewall to 700 billion euros.

The ECB is nonetheless concerned that its generous funding operations have made banks too dependent, and wants to wean banks off such loans.

The central bank has an ally on that issue in the European Banking Authority (EBA), which wants banks to stand on their own two feet and at its board meeting this week is trying to come up with ways to encourage them to do so.

The bank dependency concerns and Spanish worries are playing out against a deteriorating economic backdrop across the euro zone. While Draghi said last month the worst of the crisis was over, the latest economic data show the economy stumbling again.

Last month, the economy was hit by a sharp fall in French and German factory activity that even the most pessimistic economists failed to predict.

This means that even though inflation has proved to be stickier than forecast, the ECB is not about to tighten policy any time soon. It had to reverse two rate rises last year as the crisis came back with a vengeance and will be careful not to repeat the mistake of abandoning its low-rate policy too soon.

Analysts have pushed back their view on the next rate move, a Reuters poll showed <ECB/INT>. They now expect rates to have reached a floor – they equal a record low 1.0 percent – and tip them to go up late next year at the earliest.

Some economists even believe that, despite pressure from the hardliners to prepare an exit strategy, the ECB will need to cut rates again later this year.

“With more negative news on the economy coming through and probably also inflation to decline further, we still think there is room for lower rates over the course of the year,” said Juergen Michels at Citigroup, who expected two more 1/4-point rate cuts this year to take the headline rate to 0.5 percent.

(Additional reporting by Eva Kuehnen; Editing by Peter Graff)

Asian shares fell on Wednesday after the minutes from the U.S. Federal Reserve’s March meeting reduced expectations of further stimulus measures to spur growth, leaving investors looking for more clues to the global economic outlook.

European equity markets will likely follow the weak Asian mood, with financial spreadbetters predicting major European markets to open as much as 0.8 percent lower. U.S. stock futures were down 0.4 percent.

Fed policymakers remained focused on a still elevated jobless rate while noting signs of slightly stronger growth, but the minutes suggested the appetite for further quantitative easing, so-called QE3, has waned significantly in light of an improving U.S. economy.

Along with falling stocks, gold extended losses from Tuesday’s 2 percent while the dollar held on to gains.

MSCI’s broadest index of Asia Pacific shares outside Japan fell 0.8 percent. Japan’s Nikkei average fell more than 2 percent, and below the key 10,000 points level, to a one-month low, raising concerns that Tokyo’s strong equities rally so far this year was screeching to a halt.

“The minutes do not suggest any change in the Fed’s broad policy stance, and the central bank still stands ready to take additional easing measures if economic conditions worsen,” said

Makoto Noji, senior strategist at SMBC Nikko Securities.

“While the U.S. economy is firming now, signs of slowdown in Australia, China and the euro zone would eventually put downside risks to the export-reliant U.S. economy,” he said.

Hong Kong and Shanghai markets were closed for a public holiday.

GOLD AND DOLLAR

Spot gold fell 0.1 percent to $1,645 an ounce while U.S. gold futures slipped as much as 1.8 percent to $1,642 an ounce. Copper fell 0.7 percent to $8,510 a tonne on waning hopes for more Fed stimulus.

Mining firms weighed on Australian shares while the Australian dollar tumbled to a fresh 11-week low of $1.0263 after the country’s trade balance surprisingly showed a deficit in February.

Diminished expectations of QE3 – the creation of money by the central bank to buy assets – lifted the dollar index against a basket of key currencies to its highest since March 26. But the dollar struggled to gain further against the yen after recovering from Tuesday’s three-week low of 81.55 yen.

Whether gold closes the week above or below its 55-week moving average, which stands at $1,642, will set the direction for not only bullion prices but also the dollar, analysts say.

“Everything is linked through the phenomenon of massive cash supply from central banks,” said a Singapore-based trader. “The minutes seem to support a view that the Fed is not going to pump more and more cash into the markets.”

More Fed stimulus would be tantamount to printing money and depreciate the dollar’s value, which in turn would enhance the appeal of gold.

NON-FARM PAYROLLS, DEBT SALES

The markets will face key U.S. non-farm payrolls data on Friday, which could offer further evidence for a reduced need of additional monetary measures to spur faster economic growth.

The U.S. economy likely notched up a fourth month of solid job growth in March and is expected to have added 203,000 jobs last month, according to a Reuters survey, after non-farm payrolls rose 227,000 in February.

In a double test of appetite for lower-rated debts, the Spanish Treasury will sell up to 3.5 billion euros in debt and Portugal will offer 18-month bills for the first time since March 2011, a month before the European Union and International Monetary Fund staged a rescue.

Oil also extended its decline as the Fed dashed hopes of further economic stimulus for the world’s largest oil consumer, while top crude exporter Saudi Arabia pledged to keep output high in the event of a strategic stocks release.

U.S. crude futures eased 0.5 percent to $103.53 a barrel while Brent fell 0.2 percent to $124.62.

A recent rise in oil prices is one indication for recovery staying on track, and concerns about high oil prices hurting U.S. growth may be overblown, some argue.

“U.S. gasoline demand falling to its weakest since 2001 in January suggests the impact from rising oil prices is not as damaging to consumer sentiment and the broad economy as in the past when demand for gasoline was strong,” said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.

(Additional reporting by Reuters FX analyst Krishna Kumar in Sydney and Rujun Shen in Singapore; Editing by Matt Driskill and Alex Richardson)

India army units' unusual movements spooked govt - paper

Two Indian army units that moved towards New Delhi on a January night without notifying the government raised an alarm in the capital, the Indian Express newspaper reported on Wednesday, citing several unidentified sources.

The newspaper report said the infantry unit of the 33rd Armoured Division based 150 km (90 miles) from Delhi and a unit of the airbourne 50 Para brigade based in Agra to the south reached the outskirts of Delhi before being ordered back.

The army told the newspaper the units were engaged in routine training exercises to test their mobility in fog and did not need to warn the government in advance. Defence ministry spokesman Sitanshu Kar told Reuters it was not true the manoeuvres had caused alarm in the ministry.

The troop movements happened at a time of high friction between Army Chief Vijay Kumar Singh and the government. The newspaper said the accepted view is there was a breakdown in communication rather than a plot of any kind.

The military in India is not known for conspiring against the government in a region plagued by instability.

On the night in question, lookouts confirmed the two units were travelling towards Delhi, the report said.

Defence Minister A.K. Antony was informed and the government ordered police to check all vehicles on roads to Delhi as a way of slowing traffic. The defence secretary, the ministry’s top civil servant, cut short a trip to Malaysia to handle the situation.

The report highlights the deep rifts and tense atmosphere in recent months between the world’s second largest standing army and the government.

On January 16, the day the exercises took place, Singh took a case against the government to the Supreme Court in a row about whether he could serve another year before retiring. He later lost the case.

The army chief has since said he was offered a $2.8 million bribe and accused the defence minister of not acting on information about corruption in the forces. He also wrote a letter to the prime minister in March saying the army was not in proper shape to defend the country. The letter was leaked.

(Reporting by Anurag Kotoky and Frank Jack Daniel; Editing by Ron Popeski)

Google Inc will continue to invest in China, where it has a testy relationship with the government, with a focus on growing its fast-growing display and mobile advertising businesses, its Asia chief said on Tuesday.

In a brief telephone interview during a visit to Taiwan, Google’s APAC President Daniel Alegre said the company sees opportunities in connecting China’s businesses with potential overseas customers.

“We’ve never left China,” Alegre said.

“We continue to have operations in Beijing, Shanghai and Guangzhou; we have a thriving engineering centre, our sales infrastructure is something that we continue to grow, and the display, export and mobile opportunities are growing much faster than we had ever predicted.”

Google moved its servers from China to Hong Kong in 2010 after a hacking attack that was widely blamed on China, saying also at the time it was no longer willing to censor search results. The issue became a political strain between the U.S. and China.

Google continues to run operations in China, though relations with the Chinese government remain strained.

Alegre said Google can serve as a platform for the vast number of small and medium enterprises in China to access global consumers.

There are also over 10,000 Chinese registered developers on AdMob, the mobile advertising platform that Google bought in 2009.

Google currently has more than 500 employees in China and it said it plans to keep the number stable at this stage.

Alegre was in Taiwan to break ground on Google $300 million data centre in Taiwan, its third in Asia after Singapore and Hong Kong.

The company expects the Taiwan centre to come online in the second half of 2013.

(Reporting by Clare Jim; Editing by Jonathan Standing)

Key risks to watch out in India

India’s economy is exposed to an extended euro zone crisis and policy paralysis at home, while the coalition government is under tremendous strain from scandals and rebellious coalition partners.

The risk of Prime Minister Manmohan Singh’s second term being cut short before a general election due in 2014 is low, but cannot be ruled out.

The failure of Congress party in state elections in early March, and a looming fight over the cheap sale of coalfields have put him and the party under even more pressure.

The 2012/13 budget, delivered in March, shied away from commitments to bold reform, its cautious tone reflecting the government’s frailty.

RATINGS (Unchanged since March unless stated):

S&P: BBB-

MOODY’S: Baa3

FITCH: BBB-

The cost of insuring against default on 5-year sovereign debt traded at 83 basis points in mid-March, down around 25 points from the start of the year.

Following is a summary of key political risks in India:

SCANDALS, ELECTORAL FAILURE

Lurching from crisis to crisis for more than a year, Prime Minister Singh’s government has a new front to deal with in the form of a looming fight over the low-priced sales of coalfields in his first term. A draft report by the Comptroller and Auditor General of India leaked to a newspaper estimated lost revenue of $211 billion from the sales, but the CAG has since backed away from that number.

All parties will now wait for the final report to be tabled in parliament, when the government will once again be put under severe pressure.

Rahul Gandhi, son of current party leader Sonia Gandhi, utterly failed to deliver a promised comeback for the Congress party in crucial state elections in early March, casting fresh doubt on his capacity to become the next member of a dynasty to lead the country.

The party’s flop in Uttar Pradesh has reduced Singh’s scope to re-launch reforms and reverse a slowdown in economic growth.

Anger at Singh’s poor performance is rising, with some talk in the Indian media that he will not survive as prime minister until 2014 elections.

That is unlikely, and the government could probably also muster the support to survive a no-confidence vote. Also helping the government is the lack of appetite among the opposition Bharatiya Janata Party (BJP) for a general election before 2014. Despite Singh’s woes, it is by no means clear the BJP has won over sufficient voters to its Hindu nationalist cause.

Party chief Sonia Gandhi, who is at least as influential as the prime minister, has made more public appearances of late, but shed no light on her illness, which some Indian media reports say is cancer.

What to watch:

- CAG’s report on coal, which has the potential to be even bigger than the telecoms scandal that rocked the government last year. No evidence of wrongdoing has yet emerged.

- The Gandhi dynasty. Rahul Gandhi has yet to prove himself an effective politician, raising concerns he will struggle to lead the party if his mother steps down.

ECONOMIC MALAISE, BUDGET FAILS TO INSPIRE

The stock market fell in response to Finance Minister Pranab Mukerjee’s annual budget on March 16, seen as a weak attempt at tackling the fiscal deficit, the worst among the big emerging market BRIC nations.

Mukherjee unveiled a smattering of anti-deficit measures including an increase in services and excise taxes, but dared not cut subsidies for petroleum products, which have weighed heavily on government finances especially as oil prices stay high.

Some analysts believe the government may miss its newly-set target of cutting subsidy spending to 2 percent of GDP, as well as a goal of cutting the fiscal deficit to 5.1 percent from 5.9 percent in 2011-12.

In the main, the problems afflicting Asia’s third-largest economy remain unsolved.

Inflation is down sharply, but almost entirely because of a drop in volatile food prices. With the government embroiled in corruption scandals, and dealing with unreliable coalition partners, the prospects seem slim for tricky tax reform or a softening of foreign investment rules that could help deal with infrastructure bottlenecks.

An early 2012 Supreme Court order that 122 telcoms licences be revoked was deeply embarrassing for the government, and Singh has had to roll back even modest economic measures like a railway fare rise.

The government has succeeded in passing no major legislation, leaving it with a heavy load of promised reforms to push through two fractious houses of parliament. Fickle coalition partners and a disruptive opposition mean the government is often effectively a minority when it tables bills.

Singh has promised to revive a stalled policy to allow foreign supermarkets into India, along with a corruption ombudsman. The first stage of a new tax system is planned for April. On current form, nobody should hold their breath.

India is sitting on a comfortable cushion of $300 billion in foreign reserves and a confidence-building $15 billion currency swap line with Japan was unveiled in December, so comparisons with India’s 1991 payments crisis are premature.

As ever, India’s dependence on imported, subsidised energy is a weakness, with high prices adding to pressure both on the current account and fiscal deficits. A long financial crisis in Europe could exacerbate capital outflows and further trim demand for Indian exports.

What to watch:

- Response to the budget, both political and economic. Moody’s Investors Service said the budget was “credit negative” and lacked new solutions to address India’s fiscal constraints.

- Headline inflation. If price rises show a sustained slowdown, expect the monetary easing India Inc. has been demanding for months.

- Oil prices, the global economy and domestic demand.

(Editing by Daniel Magnowski)

U.S. puts $10 mln bounty on LeT founder Hafiz Saeed

The United States has put up a $10 million reward to help arrest Pakistani Islamist leader Hafiz Mohammad Saeed, suspected of masterminding two spectacular attacks on Mumbai and the parliament building in New Delhi.

The offer comes at a time of heightened tension between Washington and Pakistan and increases pressure on Pakistan to take action against the former Arabic scholar, who has recently addressed rallies despite an Interpol warrant against him.

India has long called for Saeed’s arrest and said the bounty – one of the highest on offer – was a sign the United States understood its security concerns. Only last week Saeed evaded police to address an anti-U.S. rally in Islamabad.

“India welcomes this new initiative of the government of the United States,” External Affairs Minister S.M. Krishna said on Tuesday of the reward announced on the U.S. Rewards for Justice website.

“In recent years, India and the United States have moved much closer than ever before in our common endeavour of fighting terrorists.”

The United States only offers a $10 million reward for three other people it suspects of terrorism, with a single reward of up to $25 million for Egyptian-born Al Qaeda leader Ayman al-Zawahiri.

Saeed, 61, is suspected of masterminding numerous terrorist attacks, including the November 2008 Mumbai attacks.

Poor train commuters, foreigners and some of India’s wealthy business elite were killed by 10 Pakistani gunmen in a three-day rampage through some of Mumbai’s best-known landmarks, including two luxury hotels and a Jewish centre. A total of 166 people died, including six U.S. citizens.

In the 1990s, he founded Lashkar-e-Taiba (LeT), or the Army of the Pure, one of the largest and best-funded Islamist militant organisations in South Asia. He abandoned its leadership after India blamed it and another militant group for an attack on the parliament in December 2001.

Saeed, released from prison by a Pakistani court in 2010, now heads an Islamic charity that the United Nations says is a front for the militant group.

LeT was nurtured by Pakistan’s Inter-Services Intelligence (ISI) spy agency to fight India in disputed Kashmir and analysts say it is still unofficially tolerated by Pakistan, though it was banned in the country in 2002.

Admiral Robert Willard, the head of the United States military’s Pacific Command, last year expressed concern over the expanding reach of LeT, saying it was no longer solely focused on India, or even in South Asia.

(Reporting By Frank Jack Daniel; Additional reporting by Sheree Sardar in Islamabad,; Editing by Qasim Nauman and Ron Popeski)

A one-click online payment system using Facebook and Twitter that could boost Internet sales for newspapers, music vendors and other low-priced goods and services is being tested by a major European media company, according to its developer.

The Internet poses an increasingly urgent problem for newspaper publishers who want to make money from the articles they put on their websites, but who are worried they will deter visitors by asking them to take out a full subscription.

The new system, developed by a start-up company in Belgium, means Internet surfers can pay to read a single article or download a piece of music without having to fill out forms or enter their credit card details on the website.

The company, called Paycento, uses the fact that surfers are often logged in anyway with their profiles on social networking sites like Facebook, Linkedin and Twitter.

It means that visitors to a website can pay small amounts with a single click, much in the same way that they would click a ‘Share’ or ‘Tweet’ button to post an article on their social network profile.

“Those social identity networks also are really identity providers … so we piggyback on that,” Pieter Dubois, the company’s 41-year-old founder, said.

Dubois, a former IBM (IBM.N) executive, set the company up in the middle of last year because he saw a need for easy-to-use online payments.

“The payment is really seamless … so it’s like a one click payment on the internet,” said Dubois, explaining that it is one click if the authorization procedure is not used.

The system works by a user having an online Paycento account, which they then link to their Facebook, Twitter and Linkedin accounts.

“We want to make it economical for the merchant, for the publisher to offer something at any price point, that means both at 10 cents, at 5 cents as at 1 euro,” said Dubois.

For its small payments service, online firm PayPal in Britain charges 5 pence plus 5 percent.

Paycento is talking to venture capitalists to try to raise around 5 million euros, which Dubois hopes will last the company for two to three years, when he hopes it will start covering its losses.

While the Paycento technology is not yet being used by online publishers, the company said a major European media company is testing a beta version, but declined to say which one because of a confidentiality agreement.

“We are going to make the full system, where you can really start doing commercial transactions, we would hope at the end of June … July at the latest,” said Dubois.

(Reporting By Ben Deighton; Editing by Andrew Callus)

A gunman opened fire at a Christian college in California on Monday, killing at least seven people and wounding three after telling former classmates: “Get in line and I’m going to kill you all.”

Police said the suspect, a 43-year-old Korean-American, surrendered at a Safeway grocery store several miles away from the scene at Oikos University in Oakland after the deadliest U.S. school shooting in five years.

He was named by police as One Goh, a former student at Oikos, which has links to the Korean-American Christian community. Police described the man as both a Korean national and a naturalised American citizen from Korea. They said they believed he used a handgun and acted alone.

Police did not immediately offer a motive for the rampage — which came just over a month after a student gunman in Ohio opened fire in a high school cafeteria, killing three students. It was not immediately clear why Goh had left the school.

“We haven’t interviewed him yet, so we’re still trying to put those pieces together,” Oakland police chief Howard Jordan told a news conference.

Witnesses said the gunman entered a reception area of the college at mid-morning and opened fire before walking into one of two classes in session and spraying the room with bullets.

Paul Singh, whose 19-year-old sister Devinder Kaur was shot in the arm during Monday’s rampage, told Reuters that according to his sister, the man was a former student who showed up to class for the first time in four months.

“‘Get in line and I’m going to kill you all,’ is what he said this morning, my sister told me. They thought he was joking at first,’” Singh said.

Tashi Wangchuk said his wife, 28-year-old Dechen Yangzom, was in the second classroom when she heard gunfire.

“Out of instinct, she locked the door and turned off the lights then the guy came and banged on the door and shot several rounds at the door and then he left,” Wangchuk said. “The police said what she did was heroic.”

Oakland police spokesman Johnna Watson said at least seven people had been killed and three others wounded.

It was the deadliest outburst of gun violence at a U.S. school since a Virginia Tech student shot and killed 32 people in a 2007 massacre on that campus before killing himself.

MAYOR: SHOOTING ‘HURTS THE WHOLE COMMUNITY’

Images from local TV stations on Monday showed frightened students and staff running from the school, located in a light industrial area near Oakland International Airport, as police and SWAT teams carrying assault rifles surrounded the area.

Hours later, two bodies remained on a grassy area outside the school, covered by yellow plastic sheeting.

Agents from the U.S. Bureau of Alcohol, Tobacco and Firearms were on the scene, along with dozens of local police.

“No American mayor wants to have this situation,” Oakland Mayor Jean Quan told a news conference. “This is the kind of incident that hurts the whole community.”

Angie Johnson, 52, told the San Francisco Chronicle newspaper she was doing errands nearby when she saw a young woman run from the college with a bloodied right arm, crying “I’ve been shot, I’ve been shot.”

Johnson said the wounded woman told her the shooter was a man in her nursing class who shot one person at point-blank range before spraying the room with bullets.

Nearby businesses were evacuated and shut down for the day as officers searched the school and surrounding area. A spokeswoman for nearby Highland Memorial Hospital declined to comment on the condition of victims being treated there.

“As you may have heard, the suspected shooter in today’s deadly shooting at Oikos University on Edgewater Drive is in custody, and it appears he acted alone,” a brief statement from the Oakland city administration said.

“The surrounding area is still cordoned off, but police have advised that no imminent public safety threat appears to exist in the immediate area,” it said.

Oikos, which offers programs in theology, nursing, music and Asian medicine, describes itself on its website as having been started to provide the “highest standard education with Christian value and inspiration.”

“The tragic loss of life at Oikos University today is shocking and sad,” California Governor Jerry Brown said in a statement released through his office.

“Our thoughts and prayers go out to the victims, their families and friends and the entire community affected by this senseless act of violence.”

(Additional reporting by Dan Whitcomb, Mary Slosson, Emmett Berg and Ronnie Cohen; Writing by Dan Whitcomb; Editing by Cynthia Johnston and David Brunnstrom)

Australia’s central bank opened the door wide for a rate cut in May even as it held rates steady at 4.25 percent at a review on Tuesday, saying it wanted to see coming inflation data before deciding whether to ease policy.

The Australian dollar slipped as the Reserve Bank of Australia (RBA) sounded a more cautious note on the economy, acknowledging that growth had disappointed.

“The Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy,” said RBA Governor Glenn Stevens in a short statement.

The steady outcome had been expected by all the economists polled by Reuters, but many felt the statement showed a clearer easing bias, conditional only on inflation proving tame.

The key consumer price report for the first quarter is due on April 24 and is generally expected to show underlying inflation remained comfortably within the RBA’s long-term target band of 2 to 3 percent.

“The tone was definitely dovish,” said Matthew Johnson, a senior economist at UBS. “A cut in May looks pretty likely based on the fact we don’t see all that much inflation pressure in the economy.”

“They have downgraded their domestic growth outlook. Their view on the economy has changed.”

The market seems to agree, with interbank futures implying a near-100 percent probability of a cut in May.

Such a move would be a relief for the Labor government which is slumping in the polls but still set to deliver a tough budget on May 8, a week after the central bank’s next policy meeting.

Indeed, the aggressive fiscal tightening needed to get the budget back into surplus in 2012/13 as promised is sure to be a drag on economic growth and another argument for easier monetary policy.

The RBA had previously singled out unemployment as the pivotal indicator for policy, with only a sustained increase in jobless warranting a cut from here.

Australia’s jobless rate has hovered around 5.2 percent for months now, putting it well below the United States’ 8.3 percent and half that of the euro zone.

ARGUMENTS FOR, AND AGAINST

Pressure for an easing has come from sectors hit by a high Australian dollar, such as manufacturing and tourism, while consumer caution has crimped retailers and sapped demand for credit.

Government data earlier on Tuesday showed retail sales rose a miserly 0.2 percent in February to A$21 billion, short of already modest forecasts for a 0.3 percent increase.

Sales were up just 2.6 percent on February last year, a long way from the growth pulse of 5 to 6 percent retailers enjoyed for much of the last decade.

Local banks, aiming to recoup higher funding costs, have also nudged up mortgage rates independently of any move by the RBA and effectively tightened conditions.

Yet the resource sector continues to enjoy a once-in-a-century boom as demand from China and India fuels massive investment in mines and liquefied natural gas.

The sums are staggering, with the value of projects under way or planned well north of A$400 billion and set to run for several more years.

The central bank also remain confident Beijing will engineer a soft landing for its economy, which is Australia’s biggest export market and a major driver of global commodity prices.

(Reporting by Wayne Cole; Editing by John Mair)