Stock index futures trade flat to higher

LONDON (Reuters) - Stock index futures pointed to a flat to higher open on Wall Street on Monday, with futures for the S&P 500 up 0.1 percent at 0844 GMT.
Dow Jones and Nasdaq 100 futures were unchanged.
European shares were also flat, with the FTSEurofirst 300 <.fteu3> just shy of a two-year high. The pan-European index has risen almost 3 percent since the start of the year.
The U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014, top Fed official Charles Evans said on Monday. Evans also forecast the U.S. unemployment rate would be 7.4 percent, easing to about 7 percent in 2014. Fed Chairman Ben Bernanke speaks at 2100 GMT. [ID:nL4N0AJ1JA]
Americans are beginning to feel the pinch from austerity measures. Paychecks across the country have shrunk over the last week due to higher federal tax rates, and workers say they are cutting back on spending.
Apple Inc has almost halved its order with suppliers of LCD panels for the iPhone 5 in the current quarter due to weak demand, Japanese daily Nikkei reported on Monday.
Oracle Corp released an update to its Java software for surfing the Web on Sunday, which security experts said fails to protect PCs from attack by hackers intent on committing cyber crimes.
Transocean Ltd said billionaire activist investor Carl Icahn bought a 1.56 percent stake in the offshore rig contractor and is looking to increase his holding.
Japan Airlines Co (JAL) said on Sunday that a Boeing Co 787 Dreamliner jet undergoing checks in Tokyo following a fuel leak at Boston airport last week had leaked fuel during tests earlier in the day.
Pickup truck sales are expected to outpace the broader U.S. auto market this year helped by a recovering housing market and a slew of new models from the three big U.S. automakers, executives and analysts said on Sunday.
American International Group Inc has filed a lawsuit against a vehicle created by the Federal Reserve Bank of New York to help bail out the insurer, in a bid to preserve its right to sue Bank of America Corp and other issuers of mortgage debt that went sour.
Bank of America Corp directors have reached a $62.5 million settlement to resolve investor claims over the bank's acquisition of Merrill Lynch & Co, a person familiar with the matter said, after a federal judge expressed reservations about an earlier version of the accord.
JPMorgan Chase & Co's board is expected to dock the 2012 bonuses of Chief Executive James Dimon and another top executive because of the "London Whale" trading debacle, the Wall Street Journal reported, citing people close to the company.
The first big earnings week of 2013 features major banks Goldman Sachs and JPMorgan Chase & Co, as well as online retailer eBay on Wednesday. Thursday's reports include Citigroup, Bank of America and chip maker Intel . General Electric, the largest U.S. conglomerate, is due to post fourth-quarter earnings on Friday.
The Dow Jones industrial average <.dji> gained 17.21 points, or 0.13 percent, to 13,488.43. The Standard & Poor's 500 Index <.spx> dipped 0.07 points to 1,472.05. The Nasdaq Composite Index <.ixic> added 3.88 points, or 0.12 percent, to 3,125.64.

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Morgan Stanley to trim Dubai staff amid global cuts: sources

DUBAI (Reuters) - Morgan Stanley Inc , the sixth-largest U.S. bank by assets, is trimming staff at its Dubai office, mainly by cutting jobs in its equities division, as part of a global plan to reduce costs, three sources aware of the matter said.
The bank plans to slash 1,600 jobs globally, many of whom work in its securities unit, sources told Reuters last week.
Big U.S. and European institutions are cutting investment banking jobs in the Middle East as the promise of emerging markets is overshadowed by the need to slash costs and a dearth of deal activity.
UBS , Bank of America Merrill Lynch and Nomura Holdings have all cut jobs in their investment banking teams for the region in recent months.
"The Dubai cuts are part of the bank's global plan. Obviously, the bank is trying to focus on growth opportunities in the region and there has been little growth on the equities side barring Saudi," one of the sources said, speaking on condition of anonymity as the matter has not been made public.
Morgan Stanley's equities business will now focus on Saudi Arabia, the source said, adding that planned cuts at other divisions in the Middle East were minimal.
Morgan Stanley declined to comment.
Equity capital markets issuance in the Middle East was $9.4 billion in 2012, according to Thomson Reuters data, down 5 percent from the previous year. Trading volumes in most Gulf Arab markets are down sharply from the highs of 2005-07.
It was not immediately clear how many Morgan Stanley employees in Dubai would be affected by the move, but a second source said the cuts in the emirate might be limited to fewer than 10 employees.
The U.S. bank's mergers & acquisitions head for the Middle East and North Africa left the bank recently, sources told Reuters in December.
Morgan Stanley was one of the advisers to telecom operator Etisalat in a block sale of its 9.1-percent stake in Indonesia's PT XL Axiata last year. The UAE telco got a $117 million gain on the deal.
The bank also advised French lender Societe Generale in the sale of its Egyptian arm to Qatar National Bank in December, and is one of the banks involved in the planned state-backed merger of Abu Dhabi property firms Aldar Properties and Sorouh Real Estate .

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Swatch in $1 billion deal for Harry Winston brand

GENEVA (AP) — Switzerland's biggest watch maker, Swatch Group AG, says it has agreed to pay about $1 billion to acquire Canada's Harry Winston watch and jewelry brand.
The Biel, Switzerland-based company says it will pay $750 million to acquire the brand from Toronto-based Harry Winston Diamond Corp. and will also assume as much as $250 million in debt.
The acquisition includes the Harry Winston production company in Geneva and more than 500 employees globally.
Swatch Group's chairwoman, Nayla Hayek, said in a statement Monday that the addition of a jewelry-watch brand "brilliantly complements the prestige segment" of Swatch's portfolio, helping it compete against luxury watch makers.
Harry Winston Diamond Corp.'s chairman, Robert Gannicott, said that his company would change its name to Dominion Diamond Corporation.
The deal is subject to regulatory approval.

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Knicks' Anthony banned one game for approaching Garnett

(Reuters) - New York Knicks All-Star forward Carmelo Anthony has been suspended one game by the National Basketball Association (NBA) for approaching an opposing player on multiple occasions after a recent game, the league said on Wednesday.
Anthony confronted Boston Celtics forward Kevin Garnett in the arena tunnel near the players' locker rooms and again in the parking garage following New York's 102-96 home loss on Monday.
The incidents occurred after a game in which Anthony and Garnett jawed at each other, including one exchange during the fourth quarter that lead to technical fouls for both players.
"There are no circumstances in which it is acceptable for a player to confront an opponent after a game," Stu Jackson, the NBA's executive vice president of basketball operations, said in a statement.
"Carmelo Anthony attempted to engage with Kevin Garnett multiple times after Monday's game and therefore a suspension was warranted."
Anthony, second in the league in scoring behind Kobe Bryant of the Los Angeles Lakers with a 29.0 average, will serve his suspension on January 10 when the Atlantic division-leading Knicks play at the Indiana Pacers.

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NBA-Timberwolves' Love to miss 8-10 weeks after surgery

Jan 9 (Reuters) - The Minnesota Timberwolves' playoff hopes were dealt a blow as leading scorer Kevin Love will miss up to 10 weeks because of surgery to repair his fractured right hand, the National Basketball Association team said on Wednesday.
Love reinjured his hand during the team's Jan. 3 game at Denver. The 24-year-old forward had already missed the first three weeks of the 2012-13 season with a broken right hand.
Details of the surgery, which will sideline Love for eight to 10 weeks, are expected to be announced on Thursday, the team said in a statement.
The loss of Love is a blow for the Timberwolves (16-15), who currently stand ninth in the Western Conference, one place out of a playoff berth.
The two-time All-Star, a member of the gold-medal winning U.S. team at last year's London Olympics, leads the Timberwolves in scoring with an average of 18.3 points per game and 14 rebounds.

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Timberwolves' Love to miss 8-10 weeks after surgery

(Reuters) - The Minnesota Timberwolves' playoff hopes were dealt a blow as leading scorer Kevin Love will miss up to 10 weeks because of surgery to repair his fractured right hand, the National Basketball Association team said on Wednesday.
Love reinjured his hand during the team's January 3 game at Denver. The 24-year-old forward had already missed the first three weeks of the 2012-13 season with a broken right hand.
Details of the surgery, which will sideline Love for eight to 10 weeks, are expected to be announced on Thursday, the team said in a statement.
The loss of Love is a blow for the Timberwolves (16-15), who currently stand ninth in the Western Conference, one place out of a playoff berth.
The two-time All-Star, a member of the gold-medal winning U.S. team at last year's London Olympics, leads the Timberwolves in scoring with an average of 18.3 points per game and 14 rebounds.

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Handset makers scurry to join Year of the Phablet

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  2013 CES

SINGAPORE/HONG KONG (Reuters) - Call it phablet, phonelet, tweener or super smartphone, but the clunky mobile phone - closer in size to a tablet than the smartphone of a couple of years back - is here to stay.

A surprise hit of 2012, it is drawing in more users, more handset makers and is shaping the way we consume content.

"We expect 2013 to be the year of the phablet," said Neil Mawston, UK-based executive director of Strategy Analytics' global wireless practice.

While Samsung Electronics Co Ltd has blazed a trail with its once-mocked Galaxy Note devices, now other manufacturers are scurrying to catch up.

At this week's Consumer Electronics Show in Las Vegas, Chinese telecommunications giants ZTE Corp and Huawei Technologies Co Ltd will launch their own.

ZTE, which collaborated with Italy's designer Stefano Giovannoni for the Nubia phablet, is scheduled to launch its 5-inch Grand S, while Huawei brings out the Ascend Mate, sporting a whopping 6.1-inch screen, making it only slightly smaller than Amazon's Kindle Fire tablet.

"Users have realized that a nearly 5-inch screen smartphone isn't such a cumbersome device," said Joshua Flood, senior analyst at ABI Research in Britain.

Driving the phablet's shift to the mainstream is a confluence of trends. Users prefer larger screens because they are consuming more visual content on mobile devices than before, and using them less for voice calls - the phablet's weak spot.

And as WiFi-only tablets become more popular, so has interest among commuters in devices that combine the best of both, while on the move.

According to the latest Ericsson Mobility Report, the monthly data traffic for every smartphone will rise fourfold between now and 2018 to 1,900 megabytes.

The upshot is a market for phablets that will quadruple in value to $135 billion in three years, according to Barclays. Shipments of gadgets that are 5 inches or bigger in screen size will surge by nearly nine-fold to 228 million during the same period, though estimates vary because no one can agree on where smartphones stop and phablets start.

But that's the point, some say.

"I think phone size was a preconceived notion based on voice usage," said John Berns, a Singapore-based executive who works in the information technology industry. He recently upgraded his Note for the newer Note 2 and bought another for his girlfriend for Christmas. "Smaller was better until phones got smart, became visual."

Samsung has been both the engine and beneficiary. While other players shipped devices with larger screens earlier - Dell Inc launched its Streak in 2010 - it was only when the Korean behemoth launched the Galaxy Note in late 2011, with its 5.3-inch screen, that users took an interest.

"The Streak was launched at a time when 3-inch smartphones were standard and the leap to a 5-inch Streak was a jump too far for consumers," says Strategy Analytics' Mawston.

"The Galaxy Note was launched when 4-inch smartphones had become commonplace, and the leap to 5-inch was no longer such a chasm."

THE BIGGER, THE BETTER

Since then Samsung has bet big on bigger: its updated Note has a 5.5-inch screen and its flagship Galaxy S3 - the best-selling smartphone in the third quarter of 2012 - has a screen that puts it in the phablet category for some analysts.

Samsung accounted for around three quarters of all phablets shipped last year, according to Barclays' Taipei-based analyst Dale Gai.

Samsung's marketing heft has paved the way for others. LG Electronics Inc accounted for 14 percent of shipments in the third quarter of last year, according to Strategy Analytics.

HTC Corp's 5-inch Butterfly - called the Droid DNA in the United States - has been selling well in places where Samsung is less dominant, according to Taipei-based Yuanta Securities analyst Dennis Chan. The first batch sold out soon after its December launch in Taiwan.

"I don't think we can say that Samsung invented phablets," said Lv Qianhao, head of handset strategy at ZTE. "But it did do a lot to promote this product category, which helped create tremendous demand."

Phablets are also proving popular in emerging markets.

A poll of nearly 5,000 readers of Yahoo's Indonesian website chose Samsung's Galaxy Note 2 as their favorite mobile phone of 2012, ahead of the iPhone 5.

Kristian Tjahjono, a technology journalist who posted the poll, said phablets were a natural fit for Indonesians who liked tablets but also liked making phone calls.

But while those in such markets who can afford them are going for the high-end devices, the door is opening for cheaper models. Tjahjono pointed to Lenovo's 5-inch S880, which has a lower resolution screen and sells for about $250, which is around a third of the price of Galaxy Note 2.

SWEET SPOT

Falling component prices will add to demand. The total cost of an upper-end phablet, its bill of materials, will likely fall to 2,000 yuan ($323) this year, says Gai from Barclays, and will halve within two years.

"One thousand yuan is a very sweet spot for China," he said.

India is also a fan.

Vivek Deshpande, who manages global strategy for Shenzhen-based mobile phone maker Zopo, says that while the Indian and Chinese markets are different, they both share a common appetite for aspirational devices: phones big enough for their owners to show off. This is changing the direction of lower end players.

"Zopo's primary focus is now on phablets," said Deshpande.

Even Samsung is pushing its own creation downmarket: In Las Vegas it will unveil the Galaxy Grand, a 5-inch device that lacks some of the resolution and muscle of its bigger brethren but will be aimed at markets like India. There is a version offering a dual SIM slot, a popular feature for those wanting to arbitrage cheaper call and data plans.

As phablets slide into the mainstream, handset makers are trying to find ways of differentiating.

As well as hiring Italian designer Giovannoni better known for his minimalist, sleek bathrooms, ZTE also came up with an onscreen keypad that inclines to one side of the screen, depending on whether the user is left- or right-handed.

Samsung, however, not only has first mover advantage, it can also build on its expertise in display.

Barclay's Gai says Samsung is expected to introduce a thinner, unbreakable AMOLED screen which will leave room for bigger batteries.

"That will put Samsung in good stead to still dominate the market," he said. Despite pressure in China, Gai estimates Samsung's share of smartphones with 5-inch or larger screens to fall only from 73 percent in 2012 to 58 percent in 2016, which is still the lion's share.

By then consumers will see the phablet for what it is, says Horace Dediu, a Finnish analyst who runs a technology blog asymco.com. Its rise is part of a wider march of computing power into wherever we reside - the living room, the train, bed or work.

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Fabricantes se apresuran para unirse al año de la tableta-teléfono

Samsung y un IPad 2 de Apple iPad 2 en Hong Kong, ene 3 2013. Pueden llamarlo "fableta", …more
SINGAPUR/HONG KONG (Reuters) - Pueden llamarlo "fableta", "fonobleta" o súper teléfono inteligente, pero el teléfono móvil "ladrillo" -más próximo en tamaño a una tableta que a un smartphone de hace un par de años- ha llegado para quedarse.
Un éxito sorpresa en el 2012, el modelo está atrayendo a más usuarios, más fabricantes de dispositivos y está diseñando el modo en que se utilizan contenidos.
"Esperamos que el 2013 sea el año de la tableta-teléfono", dijo Neil Mawston, director ejecutivo de Strategy Analytics, con sede en Reino Unido, especializada en dispositivos inalámbricos.
Mientras que Samsung Electronics ha marcado tendencia con sus dispositivos Galaxy Note, que una vez fueron objeto de burla, ahora otros fabricantes están tratando de seguirle la pista.
En la feria de Electrónica de Consumo de Las Vegas esta semana, gigantes de las telecomunicaciones como ZTE y Huawei Technologies lanzarán su dispositivo propio.
ZTE, que colaboró con el diseñador italiano Stefano Giovannoni para el teléfono-tableta Nubia, tiene previsto lanzar su Grand S de cinco pulgadas, mientras que Huawei sacará el Ascend Mate, con una pantalla de 6,1 pulgadas, ligeramente más pequeño que la tableta Kindle Fire de Amazon.
"Los usuarios se han dado cuenta de que un teléfono móvil con una pantalla de casi cinco pulgadas no es un dispositivo tan incómodo", dijo Joshua Flood, analista senior de ABI Research en Reino Unido.
Liderando el cambio a las tabletas-teléfono en la corriente mayoritaria hay una confluencia de tendencias. Los usuarios prefieren las pantallas más grandes porque permiten más contenido visual que antes en sus dispositivos, y los usan menos para llamar por teléfono: el punto débil de las tabletas-teléfono.
Mientras las tabletas sólo con WiFi son cada vez más populares, también lo es el interés entre los usuarios de transporte público en dispositivos que combinen lo mejor de ambos mientras están en movimiento.
Según el último informe Ericsson Mobility, el tráfico mensual de datos por cada teléfono inteligente se cuadriplicará entre ahora y el 2018 hasta 1.900 megabytes.
El aumento es un mercado para las tabletas-teléfonos que cuadruplicarán en valor hasta 135.000 millones de dólares en tres años, según Barclays. Los dispositivos que tienen cinco pulgadas o más se multiplicarán por nueve hasta 228 millones durante el mismo periodo, aunque las estimaciones varían porque nadie se pone de acuerdo dónde acaban los smartphones y empiezan las tabletas.
Pero esa es la cuestión, según algunos.
"Creo que el tamaño del teléfono era una noción preconcebida basada en el uso de voz", dijo John Berns, un ejecutivo con sede en Singapur que trabaja en la industria de la tecnología de la información. Recientemente cambió su Note por el nuevo Note 2 y compró otro para su novia en Navidad. "Más pequeño era mejor hasta que los teléfonos se hicieron inteligentes y visuales".
Asia-Pacífico es, y continuará siendo, el mayor mercado para las tabletas-teléfono, según Flood. El año pasado, la región absorbió el 42 por ciento de los envíos mundiales, una proporción que se expandirá de manera constante en los próximos años hasta alcanzar más del 50 por ciento de los envíos para el 2017, según cifras de ABI.
"Países como Japón y Corea del Sur serán mercados principales para las tabletas-teléfonos", dijo Flood, añadiendo que China, India y Malasia podrían ver un aumento de la demanda para dispositivos de pantallas más grandes conforme desarrollan nuevas redes 4G de forma extensiva.
Samsung ha sido el motor y el beneficiario. Mientras que otros de la industria enviaron dispositivos con pantallas de mayor tamaño en el pasado -Dell lanzó su Streak en 2010- sólo cuando la firma coreana sacó el Galaxy Note a finales de 2011, con su pantalla de 5,3 pulgadas, los usuarios se interesaron.
(Información adicional de Clare Jim en Taipei y Miyoung Kim en Seúl; Traducido por Emma Pinedo. Mesa de edición en español 562 24377 4400)

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Why Nobody Trusts Steubenville

Corruption: It's at the heart of the controversy over the rape case in Steubenville, Ohio, and it has to do with a lot more than just the legendary Big Red football program. Allegations of a cover-up stretching from the team to the local police to the prosecutor's office have been surfacing on social media since the alleged incident in August, but they have been lacking in detail, and that's why the hackers at Anonymous and LocalLeaks got involved last week. As the so-called Steubenville Files continue to piece together a blurry narrative based on leaked documents, viral videos, and anonymous accounts from city locals, Steubenville leaders launched a fact-finding site of their own this weekend, aiming to "disseminate the most accurate information" about the city and the football team's alleged involvement in the rape of a 16-year-old girl. But the answer to the question on everyone's mind — who should you trust? — lies beneath the small city's long history of corruption, spanning from a Justice Department investigation to rape survivors just now coming forward with tales of the police discouraging them from speaking out. As a petition seeking "real justice" crosses the threshold that will demand a public response as high up as the White House, here's a look back at Steubenville's reputation, 70 years in the making:
RELATED: The Steubenville Rape Case's Party Host Has His Sports Scholarship Under Review
1940s-1960s: "Little Chicago"
RELATED: Local Leaks Tipsters Allege Steubenville Victim Was Drugged
That's not a good nickname to be carrying around in the Midwest's heyday of mobsters, and the monicker wasn't just because of the "downtown bustle" in the "corruption"-laden little Ohio metropolis. "Steubenville is trying to live down its reputation for brothels, gambling joints, and crooked machine politics," the AP's Beth Grace wrote back in 1986. During the late 80s, according to Grace, the city began to take its corrupt officials to task, but...
RELATED: Everything You Need to Know About Steubenville High's Football 'Rape Crew'
1996-1997: The United States vs. The City of Steubenville
RELATED: Inside the Anonymous Hacking File on the Steubenville 'Rape Crew'
After a year-long investigation, the Justice Department made Steubenville's police department just the second in history forced to sign an agreement setting up new measures to combat police corruption under the 1994 Crime Bill. Here is part of the 1997 ruling on misconduct involving the city police and the city manager — the same two offices, it turns out, that spoke out in this weekend's new fact-finding mission:
The United States brings this action to enforce Section 210401 of the Violent Crime Control and Law Enforcement Act of 1994, 42 U.S.C. § 14141. The United States alleges that officers of the Steubenville Police Department have engaged in a pattern or practice of conduct that deprives persons of rights, privileges, or immunities secured and protected by the Constitution and the laws of the United States, and that the City of Steubenville, the Steubenville Police Department, and the Steubenville City Manager (in his capacity as Director of Public Safety) have caused and condoned this conduct through inadequate policies and failure to train, monitor, supervise, and discipline police officers, and to investigate alleged misconduct.
Part of that agreement involved promising to start a new training program for all police officers, including a special section on domestic violence, as well as a new internal-affairs policy.
RELATED: One of Steubenville's 'Rape Crew' Wants to Get Out of Steubenville
The Celebrity Testimonies
When it comes to famous people claiming Steubenville as home, Dean Martin is the crown jewel. Then there's former porn star Traci Lords, who fled town after being sexually abused there at the age of 10. And, as has been making ripples on Twitter over the last week, there is the experience of Rza, the poetic rapper and filmmaker most famous for leading the Wu-Tang Clan. In his 2010 memoir The Tao of Wu, Rza wrote the following of his hometown:

Sheriff Abdalla and Rape
The New York Times story that first brought the case to national attention focused on the plight of city police chief William McCafferty, who was having trouble gathering eyewitness accounts. Collecting that kind of information was ostensibly the point of the efforts by Anonymous, but the hacking collective has focused instead on Jefferson County Sheriff Fred Abdalla, suggesting that he is close with Steubenville football coach Reno Saccoccia and that he was responsible for "inadvertently" deleting key video evidence. Over the weekend Abdalla took Anonymous to task in his office at an Occupy Steubenville rally, but as the spotlight refocuses on Abdalla, stories have surfaced all across social media suggesting that the sheriff might not be sympathetic to rape victims. Here's the Facebook post currently being highlighted by Anonymous:

Trippanti has not yet responded to a request for clarification from The Atlantic Wire, but according to LocalLeaks, to get the full story, but according to LocalLeaks, the WikiLeaks-style site amassing tips with Anonymous, the alleged victim of the controversial August incident had a similar experience talking to prosecuting attorney for Jefferson County, who is also the mother of a football player now in trouble with his university for allegedly throwing the party in question.
Meanwhile, the Steubenville Facts blog put together by city officials this weekend, in a post about Ohio law-enforcement policies, explains why Sheriff Abadala hasn't been as involved as much as people watching the case would like to him to be:
Crimes allegedly committed within the City of Steubenville fall within the jurisdiction of Steubenville Police. Crimes allegedly committed outside of the City but within Jefferson County fall within the jurisdiction of the County Sheriff. Because the information about alleged criminal activities in this case was first reported to city officials, the Steubenville Police Department investigated the case with the assistance of the Ohio Bureau of Criminal Identification and Investigation.
Steubenville Facts
"When people are saying that our police department did not follow procedure, that the football team runs the city, that is not the case," Steubenville City Manager Cathy Davison said at Saturday press conference announcing the new fact-finding mission by local leaders to counter the Anonymous leaks. "They went by the book. Everything was handled in an aboveboard fashion to make sure that the case can benefit from the fullest extent of the law."
And while many of the details of the case remain sealed by a judge's gag order on town officials ahead of initial hearings in the case (which may now be pushed back), the Steubenville Facts site seems more defensive than informative. The "official" blog highlights several talking points, including why the local police acted to the best of their ability:
The Chief of Steubenville Police has been in this position for 13 years and is not a graduate of Steubenville City Schools (home of the “Big Red” sports teams).  His child attends another school district.
The fact-finding site also seems to be setting expectations for a judicial timetable...
With respect to other charges that could be brought aside from allegations of sexual assault, prosecutors and police have up to two years (for misdemeanors) and up to six years (for felonies) to bring charges. Often, charges are deferred until after a trial, to evaluate the sworn testimony of witnesses at the trial.
...and a plea for patience:
Ohio public records law provides the public the ability to review nearly the entire work product of the investigators once the case is completed. This will allow anyone, within the confines of the Public Records Act, to scrutinize what occurred between the reporting of the incident and the trial.

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Exclusive: U.S. nuclear lab removes Chinese tech over security fears

LONDON (Reuters) - A leading U.S. nuclear weapons laboratory recently discovered its computer systems contained some Chinese-made network switches and replaced at least two components because of national security concerns, a document shows.

A letter from the Los Alamos National Laboratory in New Mexico, dated November 5, 2012, states that the research facility had installed devices made by H3C Technologies Co, based in Hangzhou, China, according to a copy seen by Reuters. H3C began as a joint venture between China's Huawei Technologies Co and 3Com Corp, a U.S. tech firm, and was once called Huawei-3Com. Hewlett Packard Co acquired the firm in 2010.

The discovery raises questions about procurement practices by U.S. departments responsible for national security. The U.S. government and Congress have raised concerns about Huawei and its alleged ties to the Chinese military and government. The company, the world's second-largest telecommunications equipment maker, denies its products pose any security risk or that the Chinese military influences its business.

Switches are used to manage data traffic on computer networks. The exact number of Chinese-made switches installed at Los Alamos, how or when they were acquired, and whether they were placed in sensitive systems or pose any security risks, remains unclear. The laboratory - where the first atomic bomb was designed - is responsible for maintaining America's arsenal of nuclear weapons.

A spokesman for the Los Alamos lab referred enquiries to the Department of Energy's National Nuclear Security Administration, or NNSA, which declined to comment.

The November 5 letter seen by Reuters was written by the acting chief information officer at the Los Alamos lab and addressed to the NNSA's assistant manager for safeguards and security. It states that in October a network engineer at the lab - who the letter does not identify - alerted officials that H3C devices "were beginning to be installed in" its networks.

The letter says a working group of specialists, some from the lab's counter intelligence unit, began investigating, "focusing on sensitive networks." The lab "determined that a small number of the devices installed in one network were H3C devices. Two devices used in isolated cases were promptly replaced," the letter states.

The letter suggests other H3C devices may still be installed. It states that the lab was investigating "replacing any remaining H3C network switch devices as quickly as possible," including "older switches" in "both sensitive and unclassified networks as part of the normal life-cycle maintenance effort." The letter adds that the lab was conducting a formal assessment to determine "any potential risk associated with any H3C devices that may remain in service until replacements can be obtained."

"We would like to emphasize that (Los Alamos) has taken this issue seriously, and implemented expeditious and proactive steps to address it," the letter states.

Corporate filings show Huawei sold its stake in H3C to 3Com in 2007. Nevertheless, H3C's website still describes Huawei as one of its "global strategic partners" and states it is working with it "to deliver advanced, cost-efficient and environmental-friendly products."

RECKLESS BLACKBALLING?

The Los Alamos letter appears to have been written in response to a request last year by the House Armed Services Committee for the Department of Energy (DoE) to report on any "supply chain risks."

In its request, the committee said it was concerned by a Government Accountability Office report last year that found a number of national security-related departments had not taken appropriate measures to guard against risks posed by their computer-equipment suppliers. The report said federal agencies are not required to track whether any of their telecoms networks contain foreign-developed products.

The Armed Services committee specifically asked the DoE to evaluate whether it, or any of its major contractors, were using technology produced by Huawei or ZTE Corp, another Chinese telecoms equipment maker. ZTE Corp denies its products pose any security risk.

In 2008, Huawei and private equity firm Bain Capital were forced to give up their bid for 3Com after a U.S. panel rejected the deal because of national security concerns. Three years later, Huawei abandoned its acquisition of some assets from U.S. server technology firm 3Leaf, bowing to pressure from the Committee on Foreign Investment in the United States. The committee evaluates whether foreign control of a U.S. business poses national security risks.

In October, the House Intelligence Committee issued an investigative report that recommended U.S. government systems should not include Huawei or ZTE components. The report said that based on classified and unclassified information, Huawei and ZTE "cannot be trusted to be free of foreign state influence" and pose "a security threat to the United States and to our systems."

William Plummer, Huawei's vice president of external affairs in Washington, said in an email to Reuters: "There has never been a shred of substantive proof that Huawei gear is any less secure than that of our competitors, all of which rely on common global standards, supply chains, coding and manufacturing.

"Blackballing legitimate multinationals based on country of origin is reckless, both in terms of fostering a dangerously false sense of cyber-security and in threatening the free and fair global trading system that the U.S. has championed for the last 60-plus years."

He referred questions about H3C products to Hewlett Packard. An HP spokesman said Huawei no longer designs any H3C hardware and that the company "became independent operationally ... from Huawei" several years prior to HP's acquisition of it. He added that HP's networking division "has considerable resources dedicated to compliance with all legal and regulatory requirements involving system security, global trade and customer privacy."

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