French, Malian forces capture Gao rebel stronghold

KONNA, Mali/PARIS (Reuters) - French and Malian forces fighting Islamist rebels took control on Saturday of the rebel bastion of Gao, the biggest military success so far in an offensive against al Qaeda-allied insurgents occupying the country's north.

The United States and Europe back the U.N.-mandated Mali operation as a counterstrike against the threat of Islamist jihadists using the West African state's inhospitable Sahara desert as a launching pad for international attacks.

In an overnight assault on Gao backed by French warplanes and helicopters, French special forces seized the town's airport and a key bridge over the River Niger, killing an estimated dozen Islamist fighters without suffering any losses or injuries, the French army said.

"The Malian army and the French control Gao today," Malian army spokesman Lieutenant Diaran Kone told Reuters.

The speed of the French action in a two-week-old campaign suggested French and Malian government troops intended to drive aggressively into the north of Mali in the next few days against other Islamist rebel strongholds, such as Timbuktu and Kidal.

There have been 30 French air strikes on militant targets around Gao and Timbuktu in the past 36 hours.

News that the French and Malian troops were at Gao, the largest northern town held by the Islamists, came as African states struggled to deploy their intervention force in Mali, known as AFISMA, under a U.N. mandate.

Regional army chiefs said on Saturday that a total of 7,700 African soldiers would be dispatched, up from 5,700.

Liberia, Guinea-Bissau, Burundi, Guinea and Uganda are due to join the mission, but it was not clear if progress had been made at meetings in Abidjan or Addis Ababa to overcome gaps in transport, equipment and financing.

French army spokesman Colonel Thierry Burkhard said French forces had come under fire from rebel fighters inside Gao, but that both the bridge and airport runway were undamaged.

In Paris, the French Defense Ministry said Malian and French troop reinforcements were brought in and that soldiers from Chad and Niger, who have experience in desert warfare, were also flown in.

Those Malian and regional troops would have the task of securing Gao and its surrounding area, the ministry said.

To the west, French forces recaptured Lere, on the road to Timbuktu, and were advancing, a Malian military source said, asking not be named.

For two weeks, French jets and helicopter gunships have been harrying the retreating Islamists, attacking their vehicles, command posts and weapons depots. The French action had stymied a sudden Islamist offensive launched in early January that had threatened Bamako, Mali's capital in the south of the country.

Reacting to the French-led offensive, one of the leaders of the alliance of Islamist groups occupying Mali's north promised resistance to what he called the "new Crusader aggression", in comments published by Al Jazeera's Arabic website.

Yahya Abu Al-Hamman, leader in the Sahel of al Qaeda's North African wing AQIM, which along with Malian militant group Ansar Dine and AQIM splinter MUJWA occupies Mali's north, said a "Jihadist Islamist emirate" would be created in the territory.

Washington and European governments, while providing airlift and intelligence support to the anti-militant offensive in Mali, are not planning to send in any combat troops.

U.S. Defense Secretary Leon Panetta in a call on Saturday with his French counterpart, Jean-Yves Le Drian, commended France's "strong leadership" in the effort and said the U.S. Africa Command would support the French military by conducting aerial refueling missions.

They also discussed plans for the United States to transport troops from African nations, including Chad and Togo, to support the international effort in Mali, Pentagon spokesman George Little said.

FRANCE TAKING THE LEAD

At an African Union summit in Addis Ababa, AU leaders called on the United Nations to provide emergency logistics and funding to allow the African force for Mali to deploy.

AU officials say AFISMA is severely hampered by logistical shortages and needs airlift support, ammunition, telecoms equipment, field hospitals, food and water.

There appeared to be some embarrassment among African ministers and leaders that the continent was having to rely on a former colonial power, France, much criticized for past meddling in Africa, to take the lead in the military campaign in Mali.

Rwandan Foreign Minister Louise Mushikiwabo said France's intervention was "justified".

"If Africa can't do it, somebody else should do it," Mushikiwabo told reporters on the sidelines of the summit.

France, which dispatched its military to Mali at the Bamako government's request, already has 2,500 soldiers on the ground in its former colony.

About 1,900 African troops, including Chadians, have been deployed to Mali so far. Burkina Faso, Benin, Nigeria, Senegal, Togo, Niger and Chad are providing troops while Burundi and other African nations have pledged to contribute.

While the French and Malians thrust northeast in a two-pronged offensive towards Gao and Timbuktu, Chadian and local forces in neighboring Niger are preparing a flanking thrust coming up from the south.

FRANCE: 'LOT OF WORK' AHEAD

Malian army officers said the Islamist insurgents had pulled back to avoid deadly French air strikes.

"They are all hiding. They are leaving on foot and on motorcycles," Malian Army Captain Faran Keita told Reuters at Konna, about 500 km (310 miles) southeast of Gao.

Konna's capture by the Islamist insurgents on January 10 triggered the sudden French military intervention. Reporters there saw charred rebel pickup trucks that had been blasted by French air strikes. Munitions lay scattered about.

The question remained whether the Islamists would fight to hold Gao and Timbuktu or withdraw farther north into the trackless desert wastes and mountain fastnesses of the Sahara.

"France can expel rebels from certain of the key towns, but it cannot occupy and control the entire north Mali. North Mali is the size of France," Jakkie Cilliers, executive director of the Pretoria-based Institute for Security Studies, told Reuters.

On a visit to Chile, French Prime Minister Jean-Marc Ayrault admitted French forces in Mali still faced "a lot of work".

On Friday, the Islamists blew up a road bridge on the main road south from Gao to Niger, but military officials from Niger said the Chadian and Nigerien forces could still reach Gao by other routes when they advanced.

The AU is expected to seek hundreds of millions of dollars in logistical support and funding at a conference of donors for the Mali operation to be held in Addis Ababa on January 29.

(Additional reporting by James Regan in Paris, Tiemoko Diallo in Bamako, Richard Lough and Aaron Maasho in Addis Ababa, Ange Aboa in Abidjan, Alexandra Ulmer in Santiago, Sami Aboudi in Dubai, David Lewis and Pascal Fletcher in Dakar, and David Alexander in Washington; Writing by Pascal Fletcher; Editing by David Lewis, Jason Webb and Peter Cooney)

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Third bomb attack in 24 hours kills eight Afghan police

KABUL (Reuters) - A roadside bomb killed eight policemen in Afghanistan's volatile southern province of Kandahar, police said on Sunday, the third deadly attack by insurgents against police in 24 hours.

Twenty police have been killed across Afghanistan since midday on Saturday, a level of violence that underlines concern over how the 350,000-strong Afghan security forces will manage once most NATO-led troops withdraw by the end of next year.

In the latest attack, the police in Kandahar had just finished defusing a roadside bomb and had arrested three men suspected of being Taliban insurgents when the blast occurred late on Saturday.

"As they were leaving the area another bomb went off near their vehicle, killing eight policemen and two suspects," said Kandahar Police Chief Abdul Raziq.

Six police and a third Taliban suspect were wounded.

That blast came hours after 10 police officers, including the provincial counter-terrorism chief, were killed in an attack in northern Kunduz province. Another two police were killed in a bombing in eastern Ghazni province.

Eleven years into the NATO-led war against Taliban insurgents, violence has been increasing against Afghan security forces, sparking concern that they will not be able to take over all security responsibilities by the middle of this year.

(Reporting By Hamid Shalizi; Writing by Dylan Welch; Editing by Amie Ferris-Rotman and Paul Tait)

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Bulgarians seen challenging government in nuclear plant vote

SOFIA (Reuters) - Bulgarians are expected to vote in favor of building a new nuclear power plant in their first referendum in the post-communist era on Sunday, challenging the government's decision to abandon the multi-billion-dollar project.

The plebiscite will be seen as a test of public support for the policies of rightist Prime Minister Boiko Borisov ahead of July elections, even though voting rules mean the result of the nuclear referendum is unlikely to be binding.

Borisov, already struggling to revive a lackluster economy, cancelled the construction of the 2,000-megawatt plant at Belene in March saying the Balkan country could not afford to foot the bill, estimated at more than 10 billion euros ($13.5 billion).

Bulgaria's allies in Brussels and Washington also opposed the project, fearing it would deepen the country's economic and political dependence on Russia - Moscow had offered to finance the plant which would have been built by its Atomstroyexport.

But opinion polls suggest two thirds of people who say they are going to vote will choose to press on with the plant, many of them hoping it will rein in electricity prices, create jobs and help make the country an energy hub for southeast Europe.

"Bulgaria needs a new nuclear power plant. I do not want my kids to pay high electricity bills and that's what will happen if we give up the construction of the Belene plant," engineer Georgi Avramov, 49, told Reuters ahead of the vote.

FRUSTRATED VOTERS

Polling stations opened at 6 a.m. (11:00 p.m. EST Saturday) and will close at 7 p.m. (12:00 p.m. EST Sunday), with the first exit poll results expected soon afterwards.

While the economy has emerged from a deep recession, it is growing only slowly and many voters are frustrated Bulgaria still trails other ex-communist members of the European Union, with wealth per capita less than half the bloc's average.

Analysts said a strong vote in favor of Belene would be an embarrassment for Borisov, a former bodyguard who has made little progress in his promises to root out corruption since he came to power in 2009.

Unpopular austerity measures imposed by Borisov's ruling centre-right GERB party have already narrowed its lead over opposition Socialists - who called for the referendum - ahead of parliamentary elections in July.

"If we get a strong 'pro-Belene' vote as expected, even though the results are likely to be invalid, we would already have a serious political issue on which Borisov will have to act very carefully," said Gallup International political analyst Kantcho Stoichev.

The result of the referendum, which will ask if a new nuclear power plant should be built and not about the use of nuclear power in general, will only be valid if 4.35 million out of the 6.9 million eligible voters take part - a figure analysts say will be almost impossible to reach.

If 20 percent of voters participate and half of them vote in favor of Belene, the issue will go to parliament for a final decision.

Bulgaria has an operational 2,000 megawatt nuclear power plant at Kozloduy and has hired U.S. firm Westinghouse to draw up plans to add another 1,000 MW unit at the site.

The new plant at Belene, on the River Danube, was also opposed by environmentalists, who said it would be built near an earthquake-prone area, and by rights groups who said the high-cost project would encourage corruption in the European Union's poorest country.

($1 = 0.7421 euros)

(Additional reporting by Angel Krasimirov; Editing by Andrew Heavens)

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French-backed Mali forces push towards rebel-held Gao

SEGOU/BAMAKO, Mali (Reuters) - French-backed government forces advanced into northern Mali towards the Islamist rebel stronghold of Gao on Friday, recapturing the town of Hombori and forcing al Qaeda-allied fighters to pull back under relentless French air strikes.

France sent troops and aircraft to its former colony two weeks ago to block a southward offensive by Islamists occupying Mali's north. French and Malian troops have been pushing forward on either side of the Niger River, securing several farming towns recaptured over the last week.

African Union leaders at a summit in Addis Ababa called on the United Nations to provide emergency logistics to allow a nearly 6,000-strong African ground force to deploy fully in Mali. The AU said this should be paid out of the UN budget.

Malian officials said government forces entered Hombori, about 160 km (100 miles) southwest of Gao, late on Thursday and said an offensive against Gao could take place in the next few days.

Gao, with the other Saharan desert towns of Timbuktu and Kidal, has been occupied since last year by an Islamist alliance that includes AQIM, the north African franchise of al Qaeda.

"Our troops supported by French forces entered Hombori yesterday evening without any combat. The Islamists had already deserted the town," a Malian military officer, who asked not to be named, told Reuters.

Mali's national radio said Hombori's inhabitants turned out to cheer the government soldiers.

South of Mopti, a Reuters reporter saw a large column of French armored vehicles and supply trucks rolling northeast along the main road in the direction of Gao.

Western and African leaders say the U.N.-backed intervention in Mali is necessary to stop the country's north - a vast, lawless tract of desert and mountains that juts into the Sahara - from becoming a safe haven for radical Islamist jihadists seeking to launch international attacks.

The United States and the European Union are helping with the airlift of French troops and equipment to Mali but have ruled out sending any combat troops. An EU mission to help train the Malian army will start next month.

Britain said it was sending a Sentinel manned surveillance aircraft to assist the campaign against the insurgents.

ISLAMISTS BLOW ROAD BRIDGE

Malian officials said French air raids on Thursday hit rebel positions at Ansongo, 95 km (60 miles) south of Gao. This is on the road to neighboring Niger, where Nigerien and Chadian forces are poised to join the fight against the Islamists.

But in a sign of Islamist rebel resistance, a Malian officer and residents living in the area south of Gao reported the militants had blown up a bridge at Tassiga, south of Ansongo, on the road following the Niger River down to Niger.

Two civilians were reported killed when their vehicle drove off the destroyed bridge, the same sources said.

French Rafale jets and Tiger helicopter gunships have been harrying the rebel fighters with air strikes on their vehicles, bases and stores.

The rebels have abandoned caches of munitions, including one, at Diabaly in central Mali, found to contain rockets for a Soviet-made BM-21 Grad multiple rocket launcher, witnesses said.

Despite the optimism now being shown by Malian military commanders, French officials have said their Islamist opponents appear well trained and well equipped, and are likely to resort to hit-and-run guerrilla warfare rather than committing to a conventional battle.

On Thursday, a split emerged in the Islamist militant coalition. One Tuareg leader of the Malian Ansar Dine group announced the creation of a new faction, said he wanted talks and rejected any alliance with AQIM. [ID:nL6N0ATBN1]

France has 2,500 soldiers on the ground in Mali as part of its Operation Serval (Wildcat), while a total of 3,700 French armed forces members are involved in the whole operation, according to the French Defense Ministry.

Only around 1,200 soldiers of the African intervention force for Mali, known as AFISMA and to be mostly comprised of troops from neighboring West African nations, have so far arrived in the country. Troops from Burkina Faso, Benin, Nigeria, Senegal, Togo, Niger and Chad are being deployed.

LOGISTICS AN OBSTACLE

Asked what was holding back the full deployment of the African force, the AU's peace and security commissioner, Ramtane Lamamra, told Reuters in Addis Ababa: "One word, logistics."

The AFISMA force needs airlift support, ammunition, telecoms equipment, field hospitals, food and water, he said. It also required training to operate in Mali's desert and arid mountains.

Later, Lamamra said the AU believed the UN should offer help. "We are facing an emergency situation and therefore we need to take these issues not in a business-as-usual manner, but to take exceptional measures in the UN Security Council."

UN-funded emergency help would be able to "sustain the first weeks or months of this operation". Lamamra also told journalists that the regional force needed more manpower.

"We are already at 6,000. We could go above that with more contributions from outside ECOWAS (the west African bloc)," he said. Countries have one week to pledge soldiers, reflecting the urgency over deploying the force, he said.

Asked whether the one-week cut-off was aimed at limiting the time French forces would spend in Mali, Lamamra said: "If that was the case, it would correspond with the concern expressed by the French government."

Chad and Niger are readying troops with desert fighting experience to cross the border from Niger towards Gao in a separate flanking offensive.

But Chadian Foreign Minister Moussa Faki told Reuters in Addis Ababa his country was having problems finding planes to ferry armored troop vehicles to Niger for its contingent.

"We're waiting for assistance from the international community to help us deploy all of the equipment," he said.

A conference of donors to support the Mali intervention will be held in Addis Ababa, on January 29 after the AU summit.

Lamamra said hundreds of millions of dollars would be sought to train, arm and deploy Malian and African troops. Earlier this week France put the targeted figure at about 340 million euros ($452 million) for a full year.

The European Union has earmarked 50 million euros to pay the salaries of the African ground troops, a French diplomatic source said. It was not clear what period this would cover.

(Additional reporting by Aaron Maasho, Richard Valdmanis and Richard Lough in Addis Ababa, John Irish in Paris and David Lewis in Dakar; Writing by Pascal Fletcher; Editing by Daniel Flynn and Robert Woodward)

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Syrian troops and militia push to take Sunni Homs areas

AMMAN (Reuters) - The Syrian army has stepped up an offensive on opposition Sunni Muslim strongholds in the central city of Homs, bringing in ground forces and loyalist militia to try to secure a major road junction, opposition sources said on Friday.

Around 15,000 Sunni civilians are trapped on the southern and western edge of the city near the intersection of Syria's main north-south and east-west arteries, crucial to let the army travel between Damascus and the Mediterranean coast, opposition campaigners in Homs said.

Rebels said they had moved into new areas of Homs this month to grab more territory, which could explain the offensive. Activists said that rebels had asked them not to report on the advances because it could provoke retaliatory strikes.

But activists in Homs said a barrage of army rocket, artillery and aerial bombardment had killed at least 120 civilians and 30 opposition fighters since Sunday.

In the south, eight members of Syria's military intelligence were killed by an Islamist militant car bomb on Thursday night near the frontier with the Israeli-occupied Golan Heights, opposition activists and a violence monitoring group said on Friday.

The Syrian Observatory for Human Rights said the bomb was planted by Al-Nusra Front, a rebel unit fighting to oust Assad that the United States has labeled a terrorist group.

"We think the blast might have killed a colonel who has been leading the fight against rebels in the area," Rami Abdelrahman, head of the Britain-based Observatory said. The building targeted is in the town of Saasa, 14 miles (23km) from the frontier with the Golan Heights, he said.

Syrian authorities have banned most independent media, making it difficult to verify such reports on the ground.

The nearly two-year-old conflict has now killed an estimated 60,000 people and a military stalemate has formed while hundreds of thousands of refugees flood into Syria's neighbors.

The Syrian Interior Ministry called on Thursday for Syrian refugees to come home and said they would be guaranteed safety.

A statement on the state news agency SANA said the government was "offering guarantees to all political opposition sides to enter the country ... (and) ... take part in the national dialogue without any query."

Few who left have returned, especially opposition supporters, and Assad said in a speech this month that he would not talk with opposition members he said had betrayed Syria or "gangs recruited abroad that follow the orders of foreigners".

The war has reached every province in the country and fighting has encroached on the heart of the capital Damascus, with residents reporting the daily thud of artillery being fired on rebel-held districts in the outskirts.

U.S. ambassador to Syria Robert Ford told CNN on Thursday that Assad's mother Anisa Makhlouf and his sister Bushra had both moved to the United Arab Emirates. It is not clear why they left.

SHABBIHA BROUGHT IN

Activist Nader al-Husseini, speaking by phone from the western sector of Homs, said at least 10,000 pro-Assad shabbiha militiamen had been brought from the coastal city of Tartous to back up the regular army.

"They go in infantry formations behind the soldiers and their specialty is looting and killing civilians," he said, adding that among dozens killed by the shabbiha were a family of five in the village of Naqira.

Husseini said 100 wounded civilians were trapped in Homs' western neighborhood of Kafar Aya and that the Free Syrian Army rebels had tried to negotiate a deal to evacuate them but failed.

Opposition sources blame shabbiha for the death of more than 100 Sunni men, women and children when they overran a nearby area 10 days ago.

Mostly Sunni Homs, a commercial and agricultural hub 140 km (90 miles) north of Damascus, has been at the heart of the uprising and armed insurgency against Assad and his establishment, composed mostly of Alawites, who follow an offshoot of Shi'ite Islam and comprise about 10 percent of the population. There is a large Alawite minority in Homs.

Syrian authorities have not commented directly on the latest offensive, but official media have in the past referred to the need to 'cleanse' the city of what they described as terrorists who were terrorizing peaceful neighborhoods.

Tareq, another activist, said the fall of Kafar Aya and the adjacent neighborhoods of Jobar and al-Sultaniya would make the position of Sunnis in the city untenable.

"These districts are the front line with Alawite areas from where rebels have been sometimes disrupting the road between Damascus and Tartous. If they fall the Assad army will have carved a big hole to proceed deep into Homs and secure the link to the capital."

(Additional reporting by Oliver Holmes, Mariam Karouny and Reuters TV in Beirut, Dan Williams in Jerusalem; Writing by Oliver Holmes; Editing by Myra MacDonald)

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Venezuela prison riot kills dozens: report

CARACAS (Reuters) - A jail riot in southwestern Venezuela killed dozens of people on Friday, local media reported, the latest incident in the ongoing crisis in the South American nation's crowded prisons.

Violence broke out after news of an inspection to confiscate weapons at the Centro Occidental jail, Prisons Minister Iris Varela said in a statement, without providing a death toll.

Local media reports say between 26 and 54 people were killed and dozens wounded.

A prisons ministry source told Reuters that "many" had been killed, including one national guard officer, but declined to offer more details. The source said the ministry would hold a news conference on Saturday with details.

The violence involved both a struggle between rival gangs for control of the jail and a confrontation between inmates and troops called in to calm the situation, Varela said.

Venezuelan prisons are controlled by armed gangs that have rioted repeatedly over the last several years due to disputes with jail authorities or prison leaders.

"Who is going to be blamed for this new massacre in one of our country's jails? Incompetent and irresponsible government," tweeted opposition leader Henrique Capriles.

The South American nation's 34 prisons were designed to hold around a third of the 50,000 inmates now in them, according to local prison advocacy groups. Many of the prisoners are armed and hundreds are killed each year in riots and gang fights.

A month-long siege occurred in 2011 at El Rodeo prison, just outside the capital of Caracas, when 22 died before some 5,000 soldiers restored order.

(Reporting by Deisy Buitrago and Pablo Garibian, writing by Brian Ellsworth; editing by Philip Barbara)

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Police and protesters clash in Egypt, army sent to Suez

CAIRO (Reuters) - Egyptian protesters scuffled with police in Cairo on Saturday and troops were deployed in Suez after nine people were shot dead in nationwide protests against President Mohamed Mursi, exposing deep rifts two years after Hosni Mubarak was ousted.

After a day of clashes on Friday, tension remained high with a court expected to rule later on Saturday in a case against suspects accused of involvement in a stadium disaster that killed 74 people. Fans have threatened violence if the court does not deliver the justice they seek.

Eight people including a policeman were shot dead in Suez, east of the capital, and another was shot and killed in Ismailia, another city on the Suez Canal, medics said, after a day when police fired tear gas at stone-throwing youths.

Another 456 people were injured across Egypt, officials said, in Friday's unrest fuelled by anger at Mursi and his Islamist allies over what the protesters see as their betrayal of the revolution that erupted on January 25, 2011.

"We want to change the president and the government. We are tired of this regime. Nothing has changed," said Mahmoud Suleiman, 22, in Cairo's Tahrir Square, near where youths were still hurling stones at police on the other side of a concrete barrier early on Saturday morning.

The protests and violence have laid bare the divide between the Islamists and their secular rivals. The schism is hindering the efforts of Mursi, elected in June, to revive an economy in crisis and reverse a plunge in Egypt's currency by enticing back investors and tourists.

Protesters accuse Mursi and his Islamist allies of hijacking Egypt's revolution that ended 30 years of Mubarak's autocratic rule. Mursi's supporters say their critics are ignoring democratic principles after elections swept Islamists to office.

"The protests will continue until we realize all the demands of the revolution - bread, freedom and social justice," Ahmed Salama, 28, a protester camped out with dozens of others in Tahrir Square, the cauldron of the 2011 revolt.

The court hearing over the Port Said stadium disaster in February last year has fuelled concerns of more unrest.

Live images were shown from inside the court shortly before the session began. Some of those attending chanted for justice and held up pictures of those killed.

The court on the outskirts on Cairo, and in the same police compound where Mubarak was tried and jailed, is due to rule on Saturday in the cases brought against 73 people, 61 of whom are charged with murder in what was Egypt's worst stadium disaster.

However, the public prosecutor has said new evidence has emerged, meaning a verdict may be postponed.

PRESIDENT URGES CALM

Alongside the 61 charged with murder, another 12 defendants, including nine police officers, are accused of helping to cause the February 1, 2012, disaster at the end of a match between Cairo's Al Ahly and al-Masri, the local side.

Expecting a verdict, hardcore Al Ahly fans, known as ultras, have protested in Cairo over the last week, obstructing the transport network. The Port Said disaster triggered days of street battles near the Interior Ministry in Cairo last year.

In a statement in response to Friday's violence, Mursi said the state would not hesitate in "pursuing the criminals and delivering them to justice". He urged Egyptians to respect the principles of the revolution by expressing views peacefully.

The president was due to meet later on Saturday with the National Defense Council, which includes senior ministers and security officials, to discuss the violence and deaths as a result of the protests.

Troops were deployed in Suez after the head of the state security police in the city asked for reinforcements. The army distributed pamphlets to residents assuring them the deployment was temporary and meant to secure the city.

"We have asked the armed forces to send reinforcements on the ground until we pass this difficult period," Adel Refaat, head of state security in Suez, told state television.

Street battles erupted in cities including Cairo, Alexandria, Suez and Port Said. Arsonists attacked at least two state-owned buildings. An office used by the Muslim Brotherhood's political party was also torched.

The Brotherhood decided against mobilizing for the anniversary, wary of the scope for more conflict after December's violence, stoked by Mursi's decision to fast-track an Islamist-tinged constitution rejected by his opponents.

Inspired by the popular uprising in Tunisia, Egypt's revolution spurred further revolts across the Arab world. But the sense of common purpose that united Egyptians two years ago has given way to internal strife that already triggered bloody street battles last month.

(Additional reporting by Tom Perry, Marwa Awad, Ali Abdelatti and Omar Fahmy; Writing by Edmund Blair; Editing by Andrew Heavens)

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Japan envoy says territory disputes with China can be resolved

BEIJING (Reuters) - Japan believes tensions with China fanned by a dispute over a group of uninhabited islands can be resolved, a special envoy from Tokyo said on Friday after meeting China's president-in-waiting, Xi Jinping.

Natsuo Yamaguchi, head of New Komeito, the junior partner in Japan's ruling coalition, said Japan will take a broad view in dialogue with Beijing to resolve the dispute between the world's second- and third-largest economies, which has escalated in recent weeks.

"Japan wishes to pursue ties with China while looking at the big picture," Yamaguchi told reporters after his meeting with Xi, the chief of China's ruling Communist Party who is set to take over as president in March.

"I firmly believe our differences with China can be resolved," Yamaguchi said, adding that he did not directly discuss the islands issue with Xi.

Japan's nationalization in September of some of the islands, known as Senkaku in Japan and Diaoyu in China, sparked violent anti-Japanese protests across China. Some Japanese businesses were looted and Japanese citizens attacked.

Japanese manufacturers reported considerably lower sales in China in the following months.

Japanese military planes have in recent weeks been scrambled numerous times against Chinese planes approaching airspace over the islands.

Chinese planes have been shadowing Japanese aircraft elsewhere over the East China Sea and patrol vessels from the two countries have played a game of cat-and-mouse near the islands.

Yamaguchi said he delivered a letter to Xi from Japanese Prime Minister Shinzo Abe.

"We agreed that it is important to continue dialogue with the aim of holding a Japan-China summit between the two leaders," he said, though no specific details were given.

While Yamaguchi has no formal position in the government, he is leader of relatively dovish New Komeito, which joined the Liberal Democratic Party in its return to power last month. LDP leader Abe became prime minister.

China insists the islands are its territory and that it will brook no dispute over the matter.

The islands were put under Japan's control in 1895 and were part of the post-World War Two U.S. military occupation zone from 1945-72. They were then returned to Tokyo by U.S. authorities in a decision China and Taiwan later contested.

China has asked the United Nations to consider later this year the scientific validity of its claim over the islands as a natural extension of its continental shelf under a U.N. convention.

Japan says the world body should not be involved.

(Reporting by Terril Yue Jones, writing by Michael Martina,; editing by Jonathan Standing and Ron Popeski)

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State spending fuels Correa's re-election bid in Ecuador

ZUMBAHUA, Ecuador (Reuters) - Once a forgotten cluster of mud houses amid windswept peaks, the Ecuadorean village of Zumbahua today boasts a state-of-the-art schoolhouse with large projection touch screens, Internet access in every classroom and lessons in three languages.

Indigenous Kichwa Indians who once stuffed savings under their mattresses now have a bank in town and a free Internet cafe - all paid for by the state.

The treacherous muddy road to the village is being widened and paved, and residents are particularly proud of their local school.

"Education has improved dramatically ... The students know how to work with computers better than kids from the city," headmaster Vicente Caiza said.

Zumbahua is one example of how Ecuadoreans from the Andes mountains to the Amazon jungle have benefited from heavy government spending that will almost certainly win socialist President Rafael Correa a new term in next month's presidential election.

Buoyed by strong oil revenue, record tax collection and steady economic growth, Correa has won broad popular support by expanding access to healthcare, doubling state spending on education and turning rough dirt paths into proper paved roads.

Polls show the U.S.-trained economist turned leftist stalwart is the clear favorite to win the February 17 election. Polls show he has the support of about 50 percent of voters, in spite of opposition criticism that he is an autocrat who has amassed power and persecuted rivals.

A Correa victory would be a boost to the alliance of left-wing Latin American presidents at a time when Venezuela's Hugo Chavez, the bloc's figurehead, is battling to recover from cancer surgery in Cuba.

It could also mean an extension of his fight with foreign investors.

In 2008, Ecuador defaulted on $3.2 billion in bonds despite having funds to make payments. It has also squeezed revenue out of oil companies by forcing them to sign new contracts, and bullied Spain's Telefonica and Mexico's America Movil into paying more for telecoms licenses.

But Correa's anti-capitalist rhetoric belies a pragmatic streak that has allowed him to negotiate with foreign investors when necessary.

His government has offered concessions to Canadian gold miner Kinross as part of negotiations to kick-start Ecuador's nascent mining industry, and it recently called a bidding round for oil blocks to help boost stagnant production.

Though companies are startled by Correa's heavy-handed approach to negotiations, the 49-year-old will need to be more measured in his next term to ensure that Ecuador - locked out of international credit markets - receives the financing it needs.

"We have to make use of our natural resources ... oil and mines to fight poverty, especially among the indigenous people," Correa said at a campaign rally in Zumbahua, as hundreds of supporters wearing wool ponchos and fedora hats shouted "We already have a president, we have Rafael!"

Many people in rural areas support Correa, but want more.

"He has to continue, because we want the hospital that he promised us, and a fire station, and a football pitch," said Luzmilla Cuchiparte, a 24-year-old mother of one who works at Zumbahua's Internet cafe.

DIVISIVE LEADER

Correa lived in Zumbahua for a year in the 1980s when he volunteered with a Roman Catholic organization. He worked at the local barley mill and provided occasional religious instruction.

Most residents then lived hand-to-mouth, but the town is more affluent now and the school shows how much the area has changed. The some 1,000 students from Zumbahua and surrounding villages receive free books and uniforms, and teachers have been trained to use the Internet and computers to teach in Spanish, English and the local Kichwa language.

"We can't turn a blind eye to reality ... They need to learn to use the technology because if they don't they will never be able to travel," said teacher Jakeline Chicaiza.

Correa's government says it has revamped about 5,000 schools and built 18 hospitals and 250 health centers across the nation.

"You will find people throughout Ecuador saying that Correa built that road, or that a school was not there before, or that they now receive cash handouts ... Who can compete against that?" said Paulina Recalde, head of local pollster Perfiles de Opinion.

Such support has helped Correa stay in power for six years, making him the longest-running Ecuadorean president for at least four decades. He backed a constitution re-write in 2008 that allows presidents to serve two consecutive terms. That means that after this poll he cannot run again in 2017.

Rival politicians accuse Correa of undermining judicial independence and of circumventing a hostile legislature by calling a referendum on policy changes in 2011 rather than negotiating with opposition lawmakers.

The father of three is also in a self-avowed "battle" with Ecuadorean media groups, alleging that they are in the pockets of a capitalist elite.

"He's become authoritarian, domineering, arrogant. Even if we were to assume he's done everything well, to protect the (democratic) process he needs to be replaced," opposition candidate and former Correa ally Alberto Acosta told Reuters.

While Correa has broad support, many in this OPEC-member country of 15 million complain that he has raised taxes and failed to fight crime, while corruption cases involving relatives are denting some support.

Companies linked to the president's brother Fabricio Correa were awarded public contracts in violation of anti-nepotism rules, prompting the president himself to annul the deals. A cousin resigned as head of the central bank last month after admitting he had lied about having a university degree in economics.

The opposition, though, is unlikely to cash in on any discontent with Correa because it has failed to unite behind one candidate. Seven opposition candidates are fighting Correa and polls show that his closest rival, former banker Guillermo Lasso, is 31 points behind with 22 percent support.

SOCIALISM VS PRAGMATISM

In recent years, foreign investment has been low compared to neighboring Colombia and Peru, which have market-friendly governments and huge oil and mining deposits.

Colombia brought in some $13 billion in foreign investment in 2011, and Peru about $7.7 billion, against only about $650 million for Ecuador.

Ecuador failed to save money when oil prices were high, and has been relying on bilateral deals from China for funding. The London-based research company Capital Economics said in a recent report that funding from China could dry up, leaving Ecuador vulnerable.

"Ecuador will need to either boost oil revenues or increase borrowing in order to sustain the current state-led model of development," it said. "A chronic lack of investment has caused (oil) production to stagnate in recent years."

A return to global capital markets would prove very expensive, as Ecuador is considered default-prone.

The country is therefore actively trying to lure more investors. Correa launched an oil-block auction in late 2012 to open up unexplored Amazon areas and also aims to attract miners for untapped metal deposits.

Correa signed Ecuador's first large-scale mining contract with Chinese-owned Ecuacorriente last year, and is in talks with Canadian-based mining firm Kinross over a large gold deposit.

Negotiations with Kinross have been plagued by delays, in part because Ecuador was wants to reap high benefits from the project, but the two sides have said they are closer to a deal after the government agreed to reform the mining law.

Despite his frequent anti-capitalist outbursts, Correa may have no choice but to soften his stance toward investors.

"Correa received a doctorate in the United States, he obtained a masters in economy in Belgium and he studied at a private university. He lives in a dichotomy. He's a revolutionary, but also a pragmatist," said Michel Levi, a foreign affairs professor at Quito's Andina University.

"His pragmatism usually rules."

(Additional reporting By Alexandra Valencia; Editing By Brian Ellsworth, Kieran Murray and David Brunnstrom)

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Violence flares on anniversary of Egypt uprising

CAIRO (Reuters) - Hundreds of youths clashed with Egyptian police in Tahrir Square on Friday in a violent start to the second anniversary of the uprising that toppled Hosni Mubarak and led to the election of an Islamist president who is now the focus of protester rage.

Opponents of President Mohamed Mursi and his Muslim Brotherhood allies are expected to mass in Tahrir Square later on Friday to revive the demands of a revolution that they say has been betrayed by the Islamists.

The square was calm by daybreak, following early morning battles between police and protesters who threw petrol bombs and firecrackers as they tried to approach a wall blocking access to government buildings near the square.

Plumes of teargas fired by the police filled the air.

The Health Ministry said 16 people had been wounded. At one point, riot police used one of the incendiaries thrown at them to set ablaze at least two tents erected by the youths, a Reuters witness said.

Inspired by Tunisia's uprising against President Zine al-Abidine Ben Ali, Egypt's revolution helped set off more revolts in Libya and Syria. But the sense of common purpose that united Egyptians at the time has given way to conflict that has grown only worse and last month triggered lethal street battles.

The anniversary will once again showcase the divide between the Islamists and their secular opponents. The Brotherhood has decided against mobilizing in the street for the occasion, a decision that could reduce the likelihood of confrontation.

"The people want to bring down the regime," declared banners in the square. "Save Egypt from the rule of the Supreme Guide," said another, a reference to leader of the Muslim Brotherhood, Mohamed Badie.

Mursi, in a speech on Thursday marking the Prophet Mohammad's birthday, called on Egyptians to mark the anniversary "in a civilized, peaceful way that safeguards our nation, our institutions, our lives".

"The Brotherhood is very concerned about escalation, that's why they have tried to dial down their role on January 25," said Shadi Hamid director of research at the Brookings Doha Center.

"There may very well be the kinds of clashes that we've seen before, but I don't see anything major happening that is going to fundamentally change the political situation," he said.

DISCONTENT

Mursi faces discontent on multiple fronts.

His opponents say he and his group are seeking to dominate the post-Mubarak order. They accuse him of showing some of the autocratic impulses of the deposed leader by, for example, driving through a controversial new constitution last month.

The Brotherhood dismisses such criticism as unfair. It accuses its opponents of failing to respect the rules of the new democracy that put the Islamists in the driving seat by winning elections.

Six months into office, Mursi is also being held responsible for an economic crisis caused by two years of turmoil. The Egyptian pound has sunk to record lows against the dollar.

Other sources of friction abound. Activists are impatient for justice for the victims of political violence perpetrated over the last two years. Little has been done to reform brutal Mubarak-era security agencies. A spate of transport disasters on roads and railways neglected for years is feeding discontent.

The parties that have called for Friday's protest list demands including a complete overhaul of the Islamist-tinged constitution that was fast-tracked into law by Mursi in December, a move that fuelled street violence.

Its critics say the constitution, which was approved in a popular referendum, offers inadequate protection for human rights, gives the president too many privileges and fails to curb the power of the military establishment.

Mursi's supporters say the criticism is unfair, that enacting the constitution quickly was crucial to restoring stability, and that the opposition is making the situation worse by perpetuating unrest.

With its eye firmly on forthcoming parliamentary elections, the Brotherhood is marking the anniversary with a big charity campaign. It aims to deliver medical aid to 1 million people, offer affordable basic foods, and renovate some 2,000 schools.

A strong turnout on Friday could also help the Brotherhood's opponents ahead of the elections. "There is a lot of power in this day and a real chance to use that to mobilize their supporters in the lead-up to the elections," Hamid said.

(Additional reporting by Mohamed Abdellah; Writing by Tom Perry; Editing by Alison Williams)

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