Dotcom says new site legal, no revenge for Megaupload saga

AUCKLAND (Reuters) – Kim Dotcom, founder of outlawed file-sharing website Megaupload, said his new “cyberlocker” was not revenge on U.S. authorities who planned a raid on his home, closed Megaupload and charged him with online piracy for which he faces jail if found guilty.

Dotcom said his new offering, Mega.co.nz, which will launch on Sunday even as he and three colleagues await extradition from New Zealand to the United States, complied with the law and warned that attempts to take it down would be futile.

“This is not some kind of finger to the U.S. government or to Hollywood,” Dotcom told Reuters at his sprawling estate in the bucolic hills of Coatesville, just outside Auckland, New Zealand, a country known more for sheep, rugby and the Hobbit than flamboyant tech tycoons.

“Legally, there’s just nothing there that could be used to shut us down. This site is just as legitimate and has the right to exist as Dropbox, Boxnet and other competitors,” he said, referring to other popular cloud storage services.

His lawyer, Ira Rothken, added that launching the site was compliant with the terms of Dotcom’s bail conditions. U.S. prosecutors argue that Dotcom in a statement said he had no intention of starting a new internet business until his extradition was resolved.

CODES AND KEYS

Dotcom said Mega was a different beast to Megaupload, as the new site enables users to control exactly which users can access uploaded files, in contrast to its predecessor, which allowed users to search files, some of which contained copyrighted content allegedly without permission.

A sophisticated encryption system will allow users to encode their files before they upload them on to the site’s servers, which Dotcom said were located in New Zealand and overseas.

Each file will then be issued a unique, sophisticated decryption key which only the file holder will control, allowing them to share the file as they choose.

As a result, the site’s operators would have no access to the files, which they say would strip them from any possible liability for knowingly enabling users to distribute copyright-infringing content, which Washington says is illegal.

“Even if we wanted to, we can’t go into your file and snoop and see what you have in there,” the burly Dotcom said.

Dotcom said Mega would comply with orders from copyright holders to remove infringing material, which will afford it the “safe harbor” legal provision, which minimizes liability on the condition that a party acted in good faith to comply.

But some legal experts say it may be difficult to claim the protection if they do not know what users have stored.

The Motion Pictures Association of America said encrypting files alone would not protect Dotcom from liability.

“We’ll reserve final judgment until we have a chance to analyze the new project,” a spokesman told Reuters. “But given Kim Dotcom’s history, count us as skeptical.”

The German national, who also goes by Kim Schmitz, expects huge interest in its first month of operation, which would be a far cry from when Megaupload went live in 2005.

“I would be surprised if we had less than one million users,” Dotcom said.

A YEAR ON

Mega’s launch starts the next chapter of the Dotcom narrative, dotted with previous cyber crime-related arrests and whose twists and turns have been scrutinized by all facets of the entertainment industry, from film studios and record labels to internet service companies and teenage gamers.

The copyright infringement case, billed as the largest to date given that Megaupload in its heyday commanded around four percent of global online traffic, could set a precedent for internet liability laws and depending on its outcome, may force entertainment companies to rethink their distribution methods.

A year on, the extradition hearing has been delayed until August, complicated by illegal arrest warrants and the New Zealand government’s admission that it had illegally spied on Dotcom, who has residency status in the country.

Last January, New Zealand’s elite special tactics forces landed by helicopter at dawn in the grounds of Dotcom’s mansion, worth roughly NZ$ 30 million ($ 25.05 million) and featuring a servants’ wing, hedge maze and life-size statues of giraffes and a rhinoceros, to arrest him and his colleagues at the request of the FBI.

Police armed with semi-automatic weapons found Dotcom cowering alone in a panic room in the attic, while outside, a convoy of police cars and vans pulled up in the driveway. Around 70 officers took part in the raid.

They left with computers, files and some of Dotcom’s fleet of Rolls-Royces, Mercedes and a vintage pink Cadillac tricked with personalized license plates screaming “HACKER”, “EVIL”, and “MAFIA”.

“Every time you hear a helicopter, you automatically think, ‘Oh, another raid’, so it’s something that stays with you for a long time,” said Dotcom, who says he and his wife still panic when they hear sudden, loud noises in the house.

Dotcom was coy about the details of the launch party as builders put the finishing touches to a festival-sized concert stage in the mansion’s grounds, while two helicopters circled overhead.

But if the impromptu, Willy Wonka-styled ice cream social he threw in Auckland earlier in the week is any indication, the party could be a more wholesome affair compared with the well-documented soirees of Dotcom’s past, where nightclubs, hot tubs and scantily clad women were a common fixture.

“I had to grow up, you know, I was a big baby,” he said. “Big baby with too much money usually leads to baby craziness.

“I am going to be more of a person that wants to help to make things better and help internet innovation to take off without all these restrictions by governments. That is going to be my primary goal if this business is successful.”

($ 1 = NZ$ 1.2)

(Editing by Daniel Magnowski and Nick Macfie)

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Buzzmakers: Golden Globes Glamour and Jennifer Lawrence's Butt

1. Jennifer Lawrence: That's Not My Flabby Butt!

Jennifer Lawrence has been silent long enough! The Silver Linings Playbook actress showed up on the Late Show With David Letterman this week to both clarify her Meryl Streep comments during her Golden Globes acceptance speech, and set the record straight on a photoshopped pic of her bikini backside.

The actress is convinced that the paparazzi put a much older butt on her body while she was in Hawaii, telling Letterman as he held up the photo, "It's not my butt and I will not take responsibility for it. It's a 90-year-old butt that's been photoshopped onto my body, and is posing as my butt."

Causing roars of laughter in the audience, The Hunger Games beauty, 22, admits she's not the most photogenic person and she does have some "bloat" at times, but wants everyone to take away from her Late Show appearance Tuesday night that this is not her butt.

Lawrence also felt the need to address her Streep joke while at the Globes. The actress revealed that she was merely quoting Bette Midler in First Wives Club when she said Sunday night, "Look what it says, 'I beat Meryl.'"

"I had no idea Lindsay Lohan would take to the Twitterverse," she joked with Letterman. "Well, first of all it's Meryl Streep. You can't offend Meryl Streep."

2. Golden Globes Fashion Tops & Flops

Which star at the Golden Globes had the best dress, and which ones just looked like a hot mess? You decide!

Click through our gallery and vote here!

3. LeAnn Rimes Talks Infidelity & Her Ex

No topic was off limits when LeAnn Rimes sat down exclusively with ET's Nancy O'Dell.

The country superstar, whose controversial relationship with husband Eddie Cibrian has become both a blessing and a curse, tells Nancy her upcoming album Spitfire was born unexpectedly during her extra-marital affair with Eddie. In fact, a handful of infidelity themed tracks included in the album were initially written about a friend of hers while LeAnn was married to her ex, Dean Sheremet.

"What Have I Done is one of the first songs that I wrote for the record, before anything was actually starting to happen," said LeAnn. "It was written about a friend of mine, but I didn't realize I was writing it for myself at the time... It was my subconscious talking and I didn't know yet."

Speaking on the feelings that sparked her and Eddie's infamous affair, LeAnn acknowledged that her then husband had heard the troubling track and perhaps knew she would soon be led astray.

"He actually heard the song when I wrote it and, actually, he knew what it was about before I did," she reveals. "He knew I was feeling feelings. I'm not sure what those were that he knew."

Sighed LeAnn, "It's a very complicated situation."

When asked if she ever worries whether her husband Eddie would ever cheat on her, LeAnn admits that she does.

"I would be ignorant to say, and everyone else would think I am a liar if I didn't say yes, and I have at times," said LeAnn, going on to reveal that Eddie has had the same concerns about her.

"Speaking for him, I would actually say that's creeped into his [mind]…I think we've been very honest and open with that to each other and our conversations about it have only made me understand how much he actually cares, as much as I do, about being faithful to each other."

4. Mindy McCready's Boyfriend Dies from Self-Inflicted Gunshot Wound

More details into the death of Mindy McCready's boyfriend and father of her child David Wilson, who was found dead on January 13 at his Arkansas home, have surfaced.

McCready's rep, Kat Atwood, told People.com that Wilson suffered "a self-inflicted gunshot wound," adding, "Now they're working on funeral arrangements and figuring out where to go from here."

Following the news of her boyfriend's death, the country crooner was reportedly alone for the first 24 hours with her children. "Her family drove up from Florida," Atwood told the website. "I'm not exactly sure when they got there, but her personal friends arrived late last night."

"David was my soulmate," McCready, 37, said in a statement about the late singer-songwriter. "He was a precious gift from God to all of us and, yesterday, he returned home and is now with his mother and father. David loved and was loved. Those who knew and loved him will miss him; those who did know David missed the opportunity to know a truly loving and gifted man."

McCready and Wilson had been together for about two years, and share a 9-month-old son named Zayne (McCready has an older son Zander with country singer Billy McKnight).

5. Jessica Simpson on New Pregnancy: Eric Keeps Knocking Me Up!

Jessica Simpson told Jay Leno on Tuesday night's Tonight Show that she "needs to keep her legs closed" after getting pregnant twice and missing two planned wedding dates.

Wearing a leopard minidress that showed off her growing baby bump, the mommy-to-be admitted that she and her fiancé of two years Eric Johnson are planning to get married if they can quit having children. "We've had two different wedding dates, but he keeps knocking me up," Simpson, 32, joked. "We're doing it very backwards, I know. ... I'll just keep my legs crossed, I guess, this time."

The Weight Watchers spokeswoman, who reportedly lost 60 pounds after giving birth to daughter Maxwell this past year, revealed that this was not a planned pregnancy, telling Leno, "Apparently it was a part of God's plan for my life. I was extremely shocked because I was going through a lot of hormonal changes, trying to get back to the old, vibrant Jessica. You know, it was kind of like a one-night stand. And it happened, all over again!"

Simpson spilled the news on Tuesday that she'll be starring in a NBC show inspired by her life. The once Newlywed reality star quipped that the show will be about "a girl who keeps getting pregnant."

"We don't have a name yet," she confessed to Leno. "We're just now in the process of casting everyone, doing the pilot. I will be playing myself but we'll have actors playing Eric and my dad. That'll be funny."

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Lilly drug chosen for Alzheimer's prevention study

Researchers have chosen an experimental drug by Eli Lilly & Co. for a large federally funded study testing whether it's possible to prevent Alzheimer's disease in older people at high risk of developing it.

The drug, called solanezumab (sol-ah-NAYZ-uh-mab), is designed to bind to and help clear the sticky deposits that clog patients' brains.

Earlier studies found it did not help people with moderate to severe Alzheimer's but it showed some promise against milder disease. Researchers think it might work better if given before symptoms start.

"The hope is we can catch people before they decline," which can come 10 years or more after plaques first show up in the brain, said Dr. Reisa Sperling, director of the Alzheimer's center at Brigham and Women's Hospital in Boston.

She will help lead the new study, which will involve 1,000 people ages 70 to 85 whose brain scans show plaque buildup but who do not yet have any symptoms of dementia. They will get monthly infusions of solanezumab or a dummy drug for three years. The main goal will be slowing the rate of cognitive decline. The study will be done at 50 sites in the U.S. and possibly more in Canada, Australia and Europe, Sperling said.

In October, researchers said combined results from two studies of solanezumab suggested it might modestly slow mental decline, especially in patients with mild disease. Taken separately, the studies missed their main goals of significantly slowing the mind-robbing disease or improving activities of daily living.

Those results were not considered good enough to win the drug approval. So in December, Lilly said it would start another large study of it this year to try to confirm the hopeful results seen patients with mild disease. That is separate from the federal study Sperling will head.

About 35 million people worldwide have dementia, and Alzheimer's is the most common type. In the U.S., about 5 million have Alzheimer's. Current medicines such as Aricept and Namenda just temporarily ease symptoms. There is no known cure.

___

Online:

Alzheimer's info: http://www.alzheimers.gov

Alzheimer's Association: http://www.alz.org

___

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Wall Street slips after disappointing Intel results

NEW YORK (Reuters) - Stocks edged lower on Friday from a five-year high for the S&P 500 as a weak outlook from tech heavyweight Intel offset a better-than-expected quarterly profit at Morgan Stanley.

But the S&P 500 was still on track to end higher for a third consecutive week.

Shares of Intel Corp slumped nearly 7 percent to $21.11 a day after it forecast quarterly revenue below analysts' estimates and announced plans for increased capital spending amid slow demand for personal computers.

"Intel earnings weren't that bad, although their revenue was weak. It sparks fears about not only the company but about the whole PC sector, and that's pressuring the market today," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

The Intel results were offset somewhat by Morgan Stanley , which reported a fourth-quarter profit after a year-earlier loss, helped by higher revenue at the bank's institutional securities business. Its stock jumped 7.4 percent to $22.29.

Overall, S&P 500 fourth-quarter earnings rose an estimated 2.5 percent, according to Thomson Reuters data. Expectations for the quarter have dropped considerably since October, when a 9.9 percent gain was estimated.

The Dow Jones industrial average <.dji> was down 15.17 points, or 0.11 percent, at 13,580.85. The Standard & Poor's 500 Index <.spx> was down 3.51 points, or 0.24 percent, at 1,477.43. The Nasdaq Composite Index <.ixic> was down 13.98 points, or 0.45 percent, at 3,122.03.

On Thursday, the S&P 500 rose to its highest since late 2007, and that could prompt investors to lock in recent gains, analysts said.

Despite the day's decline, market sentiment was still positive on speculation that chances were better of avoiding a debt ceiling fight in Washington. House Republicans signaled on Thursday they might support a short-term extension of U.S. borrowing authority next month.

"The debt ceiling issue is sort of out of the news. The market has definitely become complacent. And we all know that the issue will be dealt with, we just need to find out when. If December is any guide, they are going to leave it up to the last minute so the market is definitely more complacent than it should be for now," Ghriskey said.

Reflecting the complacency, the CBOE Volatility index <.vix>, Wall Street's so-called fear gauge, fell 4.1 percent at just above 13. The VIX usually moves inversely to the S&P 500 as it is used as a hedge tool against further market decline.

Economic data from China provided some support to the market, though the focus remained on U.S. corporate earnings. The country's economy grew at a modestly faster-than-expected 7.9 percent in the fourth quarter, the latest sign the world's second-biggest economy was pulling out of a post-global financial crisis slowdown which saw it grow in 2012 at its weakest pace since 1999.

General Electric reported a better-than-expected rise in earnings, spurred by robust demand in China and oil-producing countries. Shares were up 2.9 percent to $21.92.

Despite the gains by Morgan Stanley, financial stocks sagged as Capital One Financial reported disappointing profit. Capital One slumped 7.7 percent to $56.87, while the KBW bank index <.bkx> slipped 0.9 percent.

Research In Motion climbed 6.6 percent to $15.91 after Jefferies Group boosted the BlackBerry maker's rating and price target.

(Editing by Bernadette Baum, Kenneth Barry and Nick Zieminski)

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Foreigners still caught in Sahara hostage crisis

ALGIERS (Reuters) - More than 20 foreigners were still being held hostage or missing inside a gas plant on Friday after Algerian forces stormed the desert complex to free hundreds of captives taken by Islamist militants, who threatened to attack other energy installations.

Thirty hostages, including at least seven Westerners, were killed during Thursday's assault, along with at least 18 of their captors, said an Algerian security source.

The attack, which plunged capitals around the world into crisis mode, is a serious escalation of unrest in northwestern Africa, where French forces have been in Mali since last week fighting an Islamist takeover of Timbuktu and other towns.

"We are still dealing with a fluid and dangerous situation where a part of the terrorist threat has been eliminated in one part of the site, but there still remains a threat in another part," British Prime Minister David Cameron told his parliament.

A local Algerian source said 100 of 132 foreign hostages had been freed from the facility. The fate of the other 32 was unclear as the situation was changing rapidly.

Earlier he said 60 were still missing with some believed still held hostage, but it was unclear how many, and how many might be in hiding elsewhere in the sprawling compound.

Two Japanese, two Britons and a French national were among the seven foreigners confirmed dead in the army's storming, the Algerian security source told Reuters. One British citizen was killed when the gunmen seized the hostages on Wednesday.

Those still unaccounted for on Friday included 10 from Japan and eight Norwegians, according to their employers, and a number of Britons which Cameron put at "significantly" less than 30.

France said it had no information on two Frenchmen who may have been at the site and Washington has said a number of Americans were among the hostages, without giving details. The local source said a U.S. aircraft landed nearby on Friday.

Some countries have been reluctant to give details of the numbers of their missing nationals to avoid disclosing information that may be useful to their captors.

As Western leaders clamored for news, several expressed anger they had not been consulted by the Algerian government about its decision to storm the facility.

The sprawling facility housed hundreds of workers. Algeria's state news agency said the army had rescued 650 hostages in total, 573 of whom were Algerians.

"(The army) is still trying to achieve a ‘peaceful outcome' before neutralizing the terrorist group that is holed up in the (facility) and freeing a group of hostages that is still being held," it said, quoting a security source.

MULTINATIONAL INSURGENCY

Algerian commanders said they moved in on Thursday about 30 hours after the siege began because the gunmen had demanded to be allowed to take their captives abroad.

An Irish engineer who survived said he saw four jeeps full of hostages blown up by Algerian troops.

A French hostage employed by a French catering company said Algerian military forces had found some British hostages hiding and were combing the sprawling In Amenas site for others when he was escorted away by the military.

"I hid in my room for nearly 40 hours, under the bed. I put boards up pretty much all round," Alexandre Berceaux told Europe 1 raid. "I didn't know how long I was going to stay there ... I was afraid. I could see myself already ending up in a pine box."

"When Algerian solders ... came for me, I didn't even know it was over. They were with some of my colleagues, otherwise I'd never have opened the door."

Western governments are trying to determine the degree to which the hostage taking was part of an international conspiracy and was linked, as the captors claimed, to the week-old French military intervention in neighboring Mali.

The Algerian security source said only two of 11 militants whose bodies were found on Thursday were Algerian, including the squad's leader. The others comprised three Egyptians, two Tunisians, two Libyans, a Malian and a Frenchman, he said.

Algeria state news agency APS said the group had planned to take the hostages to Mali.

The plant was heavily fortified, with security, controlled access and an army camp with hundreds of armed personnel between the accommodation and processing plant, Andy Coward Honeywell, who worked there in 2009, told the BBC.

U.S. Defense Secretary Leon Panetta said those responsible would be hunted down: "Terrorists should be on notice that they will find no sanctuary, no refuge, not in Algeria, not in North Africa, not anywhere," he said in London. "Those who would wantonly attack our country and our people will have no place to hide."

MALI WOES

The crisis posed a serious dilemma for former colonial power Paris and its allies as French troops attacked the hostage-takers' al Qaeda allies in Mali, another former colony.

The desert fighters have proved to be better trained and equipped than France had anticipated, diplomats told Reuters at the United Nations, which said 400,000 people could flee Mali to neighboring countries in the coming months.

In Algeria, the kidnappers warned locals to stay away from foreign companies' oil and gas installations, threatening more attacks, Mauritania's news agency ANI said, citing a spokesman for the group.

Algerian workers form the backbone of an oil and gas industry that has attracted international firms in recent years partly because of military-style security. The kidnapping, storming and further threat cast a deep shadow over its future.

Hundreds of workers from international oil companies were evacuated from Algeria on Thursday and many more will follow, BP, which jointly ran the gas plant with Norway's Statoil and the Algerian state oil firm, said on Friday.

The overall commander of the kidnappers, Algerian officials said, was Mokhtar Belmokhtar, a veteran of Afghanistan in the 1980s and Algeria's bloody civil war of the 1990s and one of a host of Saharan Islamists, flush with arms and fighters from the 2011 civil war in Libya. He appears not to have been present.

Algerian security specialist Anis Rahmani, author of several books on terrorism and editor of Ennahar daily, told Reuters about 70 militants were involved from two groups, Belmokhtar's "Those who sign in blood", who travelled from Libya, and the lesser known "Movement of the Islamic Youth in the South".

"They were carrying heavy weapons including rifles used by the Libyan army during (Muammar) Gadaffi's rule," he said. "They also had rocket-propelled grenades and machineguns."

Algeria's government is implacably at odds with Islamist guerrillas who remain at large in the south, years after the civil war through the 1990s in which some 200,000 people died.

Britain's Cameron, who warned people to prepare for bad news and who cancelled a major policy speech on Friday to deal with the situation, said he would have liked Algeria to have consulted before the raid. Japan made similar complaints.

U.S. officials had no clear information on the fate of Americans, though a U.S. military drone had flown over the area. Washington, like its European allies, has endorsed France's move to protect the Malian capital by mounting air strikes last week and now sending 1,400 ground troops to attack Islamist rebels.

The apparent ease with which the fighters swooped in from the dunes to take control of an important energy facility, which produces some 10 percent of the natural gas on which Algeria depends for its export income, has raised questions over the value of outwardly tough security measures.

(Additional reporting by Ali Abdelatti in Cairo, Eamonn Mallie in Belfast, Gwladys Fouche in Oslo, Mohammed Abbas in London and Padraic Halpin and Conor Humprhies in Dublin; Writing by Philippa Fletcher; Editing by Peter Graff)

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Morrisons to launch online kitchenware business

LONDON (Reuters) – Britain‘s fourth largest supermarket group Wm Morrison said on Friday it would extend its online presence in the spring with the launch of a kitchenware website in partnership with specialist Lakeland.

The joint venture will be Morrisons‘ third fully transactional website following the launch of wine website MorrisonsCellar.com in November and the purchase of baby care retailer Kiddicare.com in 2011.

“We believe the future for retailing many non-food products is online rather than in supermarkets,” said Chief Executive Dalton Philips.

Unlike the other grocers that make up Britain’s so called “big four” – market leader Tesco, Wal-Mart’s Asda and J Sainsbury – Morrisons does not have a website for the home delivery of food.

Earlier this month Morrisons posted a weak Christmas trading update that it partly attributed to its lack of an online food offer.

The firm is researching the possibility and plans to say more when it publishes full year results in March. Most analysts expect it to launch a trial this year.

(Reporting by James Davey; editing by Kate Holton)

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Stars Without Makeup!

Kim Kardashian

Kim Kardashian learned the hard way the consequences of falling asleep while tanning. Khloe Kardashian tweeted this pic of her big sister's unevenly sun burnt face writing, "TBT this picture makes me laugh. My little Keeks fell asleep in the sun with her sunglasses on. Still stunning even with a raccoon tan." … And clearly, also without any makeup on!

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Flu season 'bad one for the elderly,' CDC says

Flu hospitalizations among the elderly rose sharply last week, prompting federal officials to take unusual steps to make more flu medicines available and to urge wider use of them as soon as symptoms appear.

The U.S. is about halfway through the flu season, which is shaping up to be worse than average and a bad one for the elderly, said Dr. Thomas Frieden, director of the Centers for Disease Control and Prevention.

New figures from the CDC show the flu epidemic is continuing, with widespread activity in all states but Tennessee and Hawaii.

Nine more children or teens have died of the flu, bringing the nation's total this flu season to 29, health officials reported Friday. That's close to the 34 pediatric deaths reported during all of the last flu season, although that one was unusually light. In a typical season, about 100 children die of the flu and officials said there is no way to know whether deaths this season will be higher or lower than usual.

So far, half of confirmed flu cases are in people 65 and older. Lab-confirmed flu hospitalizations totaled 19 for every 100,000 in the population, but 82 per 100,000 among those 65 and older, "which is really quite a high rate," Frieden said.

"We expect to see both the number and the rates of both hospitalizations and deaths rise further in the next week or so as the flu epidemic progresses," so prompt treatment with antivirals is key to preventing deaths, he said.

Two drugs — Tamiflu and Relenza — can cut the severity and risk of death from the flu but must be started within 48 hours of first symptoms to do much good. To increase supplies of Tamiflu, said Dr. Margaret Hamburg, head of the Food and Drug Administration, said the agency had allowed Genentech to distribute additional doses that have old packaging information.

This year's season is earlier than normal and the dominant flu strain is one that tends to make people sicker.

Health officials say it's not too late to get a flu shot to help protect against the flu. Vaccinations are recommended for anyone 6 months or older.

Last week, the CDC said the flu again surpassed an "epidemic" threshold, based on monitoring of deaths from flu and a frequent complication, pneumonia. The flu epidemic happens every year and officials say this year's vaccine is a good match for strains that are going around.

The government doesn't keep a running tally of adult deaths from the flu, but estimates that it kills about 24,000 people most years.

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Online:

CDC flu: http://www.cdc.gov/flu/index.htm

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Data, eBay earnings lift Wall Street to five-year high

NEW YORK (Reuters) - Wall Street rose on Thursday, with the S&P 500 climbing to a five-year intraday high, on improved housing and jobs data along with better-than-expected results from online marketplace eBay .

The data showed the number of Americans filing new claims for unemployment benefits fell to a five-year low last week, while groundbreaking for homes rose to the fastest pace in four years last month.

Strength in the housing and labor markets is key to sustained growth and higher corporate profits. Job market improvement helps stimulate consumer spending while a recovery in housing means more purchases of appliances, furniture and other household goods as well as a source of employment.

"The real estate numbers all look good, sales looked good, prices looked good, housing starts looked good," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

"The only thing that still doesn't look really good in my mind are the employment numbers but even the claims were pretty good and inflation seems to be nonexistent so what's to stop the party from going?"

The Dow Jones industrial average <.dji> gained 82.97 points, or 0.61 percent, to 13,594.20. The Standard & Poor's 500 Index <.spx> advanced 8.31 points, or 0.56 percent, to 1,480.94. The Nasdaq Composite Index <.ixic> rose 17.12 points, or 0.55 percent, to 3,134.66.

PulteGroup Inc shares gained 4.9 percent to $20.29 and Toll Brothers Inc advanced 2.2 percent to $35.68. The PHLX housing sector index <.hgx> climbed 2.1 percent.

EBay's shares rose 3 percent to $54.47 a day after it reported holiday quarter results that just beat Wall Street expectations. It gave a 2013 forecast that was within analysts' estimates.

The S&P is on track for its third consecutive advance, which pushed the index above an intraday peak set in September to its highest since December 2007.

But gains were tempered by weakness in the financial sector, with Bank of America down 4.3 percent to $11.27 and Citigroup off 3 percent to $41.22 after they posted their results.

Bank of America's fourth-quarter profit fell as it took more charges to clean up mortgage-related problems. Citigroup posted $2.32 billion of charges for layoffs and lawsuits, while its new chief executive cautioned the bank needed more time to deal with its problems.

The S&P financial sector index <.spsy> slipped 0.14 percent as the only one of the 10 major S&P sectors to decline.

S&P 500 corporate earnings for the fourth quarter are expected to rise 2.3 percent, Thomson Reuters data showed. Expectations for the quarter have fallen considerably since October when a 9.9 percent gain was estimated.

With investors anticipating the current earnings season to be lackluster, their focus will be on the corporate earnings outlook for the months ahead, analysts said.

Shares of Boeing extended recent declines after the United States and other countries grounded the company's new 787 Dreamliner after a second incident involving battery failure. Boeing shed 0.4 percent to $74.05 and is down 1.5 percent for the week so far.

Market breadth was solid, with advancers outpacing decliners on the New York Stock Exchange 2,234 to 650, while on the Nasdaq the ratio was 1,602 to 762 in favor of advancing stocks.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry and Nick Zieminski)

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Algerian forces launch operation to break desert siege

ALGIERS (Reuters) - Twenty-five foreign hostages escaped and six were killed on Thursday when Algerian forces launched an operation to free them at a remote desert gas plant, Algerian sources said, as one of the biggest international hostage crises in decades unfolded.

Fast-moving details of the military operation to free the hostages were difficult to confirm. Algeria's official APS news agency said that the military had freed four foreign hostages, giving no further information.

A local source told Reuters six foreign hostages were killed along with eight captors when the Algerian military fired on a vehicle being used by the gunmen. An Algerian security source said the 25 foreign hostages had escaped.

Mauritania's ANI news agency, which has been in constant contact with the kidnappers, said seven hostages were still being held: two Americans, three Belgians, one Japanese and one British citizen.

The standoff began when gunmen calling themselves the Battalion of Blood stormed the gas plant on Wednesday morning. They said they were holding 41 foreigners and demanded a halt to a French military operation against fellow al Qaeda-linked Islamist militants in neighboring Mali.

ANI and Qatar-based Al Jazeera reported that 34 of the captives and 15 of their captors had been killed when government forces fired from helicopters at a vehicle. Those death tolls, far higher than confirmed by the local source, would contradict the reports that large numbers of foreigners escaped alive.

Britain and Norway, whose oil firms BP and Statoil run the plant jointly with the Algerian state oil company, said they had been informed by the Algerian authorities that a military operation was under way but did not provide details.

As many as 180 Algerian hostages had also been held but managed to flee, the local source said.

The incident dramatically raises the stakes in the French military campaign in neighboring Mali, where hundreds of French paratroopers and marines are launching a ground offensive against rebels after air strikes began last week.

Algerian Interior Minister Daho Ould Kablia said the kidnappers were led by Mokhtar Belmokhtar, a veteran Islamist guerrilla who fought Soviet forces in Afghanistan in the 1980s and had set up his own group in the Sahara after falling out with other local al Qaeda leaders.

A holy warrior-cum-smuggler dubbed "The Uncatchable" by French intelligence and "Mister Marlboro" by some locals for his illicit cigarette-running business, Belmokhtar's links to those who seized towns across northern Mali last year are unclear.

The hostage takers earlier allowed some prisoners to speak to the media, apparently to put pressure on Algerian forces not to storm the compound. An unidentified hostage who spoke to France 24 television said prisoners were forced to wear explosive belts and captors had threatened to blow up the plant.

Two hostages, identified as British and Irish, spoke to Al Jazeera television and called on the Algerian army to withdraw from the area to avoid casualties.

"We are receiving care and good treatment from the kidnappers. The (Algerian) army did not withdraw and they are firing at the camp," the British man said. "There are around 150 Algerian hostages. We say to everybody that negotiations is a sign of strength and will spare many any loss of life."

NUMBERS UNCONFIRMED

The precise number and nationalities of foreign hostages could not be confirmed, with some countries reluctant to release information that could be useful to the captors.

Britain said one of its citizens was killed in the initial storming on Wednesday and "a number" of others were held.

The militants said seven Americans were among their hostages, a figure U.S. officials said they could not confirm.

Norwegian oil company Statoil said nine of its Norwegian staff and three Algerian employees were captive. Britain's BP, which operates the plant with Statoil and Algerian state oil company Sonatrach, said some of its staff were held but would not say how many or their nationalities.

Japanese media said five workers from Japanese engineering firm JGC Corp. were held, a number the company did not confirm. Paris has not said whether any hostages were French. Vienna said one hostage was Austrian, Dublin said one was Irish and Bucharest said an unspecified number were Romanian.

Spanish oil company Cepsa said it had begun to evacuate personnel from elsewhere in Algeria.

Paris said the Algeria attack demonstrated it was right to intervene in Mali: "We have the flagrant proof that this problem goes beyond just the north of Mali," French ambassador to Mali Christian Rouyer told France Inter radio.

President Francois Hollande has received public backing from Western and African allies who fear that al Qaeda, flush with men and arms from the defeated forces of Libya's Muammar Gaddafi, is building a desert haven in Mali, a poor country helpless to combat fighters who seized its north last year.

However, there is also some concern in Washington and other capitals that the French action in Mali could provoke a backlash worse than the initial threat by militants in the remote Sahara.

The militants, communicating through established contacts with media in neighboring Mauritania, said they had dozens of men armed with mortars and anti-aircraft missiles in the compound and had rigged it with explosives.

"We hold the Algerian government and the French government and the countries of the hostages fully responsible if our demands are not met, and it is up to them to stop the brutal aggression against our people in Mali," read one statement carried by Mauritanian media.

They condemned Algeria's secularist government for letting French warplanes fly over its territory to Mali and shutting its border to Malian refugees.

PRESSING ON

The attack in Algeria did not stop France from pressing on with its campaign in Mali. It said on Thursday it now had 1,400 troops on the ground in Mali, and combat was underway against the rebels that it first began targeting from the air last week.

"There was combat yesterday, on the ground and in the air. It happened overnight and is under way now," said Le Drian. Residents said a column of about 30 French Sagaie armored vehicles set off on Wednesday toward rebel positions from the town of Niono, 300 km (190 miles) from the capital, Bamako.

The French action last week came as a surprise but received widespread international support in public. Neighboring African countries planning to provide ground troops for a U.N. force by September have said they will move faster to deploy them.

Nigeria, the strongest regional power, sent 162 soldiers on Thursday, the first of an anticipated 906.

"The whole world clearly needs to unite and do much more than is presently being done to contain terrorism, with its very negative impact on global peace and security," President Goodluck Jonathan said.

Germany, Britain and the Netherlands have offered transport aircraft to help ferry in African troops. Washington has said it is considering what support it can offer.

Many inhabitants of northern Mali have welcomed the French action, though some also fear being caught in the cross-fire. The Mali rebels who seized Timbuktu and other oasis towns in northern Mali last year imposed Islamic law, including public amputations and beheadings that angered many locals.

A day after launching the campaign in Mali, Hollande also ordered a failed rescue in Somalia on Saturday to free a French hostage held by al Qaeda-linked al Shabaab militants since 2009. Al Shabaab said on Thursday it had executed hostage Denis Allex. France said it believed he died in the rescue.

(Reporting by Lamine Chikhi; Writing by Peter Graff; Editing by Giles Elgood)

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