Syria envoy calls for political change to end conflict

BEIRUT (Reuters) - The international envoy seeking a negotiated solution to Syria's 21-month-old conflict said on Thursday political change was needed to end the violence which has killed 44,000 people.

Speaking in Damascus at the end of a five-day trip during which he met President Bashar al-Assad, Lakhdar Brahimi called for a transitional government to rule until elections and said only substantial change would meet demands of ordinary Syrians.

Russian Foreign Minister Sergei Lavrov added to the envoy's call for a peaceful solution when he told a senior Syrian diplomat that only a "broad inter-Syria dialogue and political process" could end the crisis.

Brahimi's push for a transitional government suggested he was trying to build on an international agreement in Geneva six months ago which said a provisional body - which might include members of Assad's government as well as the opposition - should lead the country into a new election.

But the mainly Sunni Muslim Syrian rebels have seized the military initiative since the Geneva meeting in June and the political opposition has ruled out any transitional government in which Assad, from Syria's Alawite minority, plays a role.

Rebel fighters resumed attacks on Thursday against the military base of Wadi Deif, which lies next to Syria's main north-south highway linking Aleppo with Damascus.

The Syrian Observatory for Human Rights, a British-based opposition group which monitors the violence, said rebels also clashed with Assad's forces inside the Minakh air base in Aleppo province after several days of fighting outside its perimeter, although the army still controlled the base itself.

Around the capital, Assad has used artillery and air strikes for weeks to try to dislodge rebels from suburbs which ring the east and south of the city.

"Certainly it was clear in Geneva, and it's even clearer now that the change which is needed is not cosmetic or superficial," Brahimi told a news conference in Damascus before leaving Syria.

"I believe the Syrian people need, want and aspire to genuine change and everyone knows what this means," he said.

"A government must be created ... with all the powers of the state," Brahimi added. He said it should hold power for a transitional period until elections - either for a new president or a new parliament - are held.

"This transitional process must not lead to the ... collapse of state institutions. All Syrians, and those who support them, must cooperate to preserve those institutions and strengthen them," he said.

Radwan Ziadeh of the opposition Syrian National Council dismissed Brahimi's proposal as "unrealistic and fanciful" and said a transitional government could not be built on the same "security and intelligence structure as the existing regime".

TOO SOON FOR COMPLETE PLAN

Russia's Lavrov met Syrian Deputy Foreign Minister Faisal Makdad in Moscow on Thursday. Interfax news agency quoted Lavrov as saying the chances of forging a solution based on the Geneva agreement were decreasing, but it was necessary to keep seeking a peaceful solution because the alternative is "bloody chaos".

"The longer it continues, the broader its scale and the worse (it will be) for everyone," it quoted Lavrov as saying.

Syrian and Lebanese sources said Makdad had been sent to Moscow to discuss details of a peace plan proposed by Brahimi.

Brahimi is due in Moscow on Saturday and said he also expected to have a third joint meeting with U.S. and Russian officials soon following two rounds of talks earlier this month. But he denied the existence of a U.S.-Russian plan to end the crisis and said it was too soon to present a "complete plan".

"What is preferred is that we don't present such a plan until we feel that all sides have agreed to it. That way, implementing it is easy. If that doesn't happen, the other solution could be to go to the (United Nations) Security Council to issue a binding resolution for everyone," he said.

A Russian Foreign Ministry spokesman also denied any joint initiative between Moscow and Washington.

World powers remain divided over what has become an increasingly sectarian struggle, with Sunni Muslim states such as Turkey and the Gulf Arab countries supporting the rebels while Shi'ite Iran and Hezbollah have backed Assad, whose Alawite community has its roots in Shi'ite Islam.

Syria's struggle "has taken a vicious form of sectarian confrontation", Brahimi said. "Syrian officials foremost, as well as the international community, must not let Syria slide down this very dangerous path which threatens the future of Syria."

Deep differences between Western powers opposed to Assad - led by the United States - and Russia and China which have supported his government, have left the U.N. Security Council paralyzed and largely sidelined throughout the conflict.

The political stalemate has helped transform a once-peaceful uprising into a civil war in which rebels have grown in military strength and taken control of swathes of territory in the north, leaving Assad increasingly reliant on air power to curb them.

Activists in the central province of Hama, where rebels launched an offensive last week to extend their control southwards towards the capital, reported on Thursday that rebels shot down a MiG fighter near the town of Morek.

The Syrian Observatory said air force fighters launched three raids on rebel forces around Wadi Deif. The British-based group also reported fierce clashes in the area.

The violence has been accompanied by an escalation in apparently sectarian attacks between the Sunni Muslim majority and minorities such as Assad's Alawite sect, which has largely supported the president.

Activists in Hama uploaded a video of what appeared to be Assad soldiers and shabbiha militia members stabbing the body of a dead man and setting it on fire. The man looked as if he had been beaten to death.

"This is a terrorist, a brother of a whore, one of those trying to destroy the country," one of the men shouted. Two men in camouflage uniforms and army helmets stood by watching. Samer al-Hamawi, an activist from Hama, said rebels in his area found the video on the phone of a soldier they captured this week.

The video emerged a day after Islamist rebel units released footage showing the bodies of dozens of Assad's fighters along a highway near an Alawite town in Hama.

(Additional reporting by Marwan Makdesi in Damascus and Steve Gutterman in Moscow; Editing by Michael Roddy)

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Russia's Putin signals he will sign U.S. adoption ban

MOSCOW (Reuters) - President Vladimir Putin signaled on Thursday he would sign into law a bill barring Americans from adopting Russian children and sought to forestall criticism of the move by promising measures to better care for his country's orphans.

In televised comments, Putin tried to appeal to people's patriotism by suggesting that strong and responsible countries should take care of their own and lent his support to a bill that has further strained U.S.-Russia relations.

"There are probably many places in the world where living standards are higher than ours. So what, are we going to send all our children there? Maybe we should move there ourselves?" he said, with sarcasm.

Parliament gave its final approval on Wednesday to the bill, which would also introduce other measures in retaliation for new U.S. legislation which is designed to punish Russians accused of human rights violations.

For it to become law Putin needs to sign it.

"So far I see no reason not to sign it, although I have to review the final text and weigh everything," Putin said at a meeting of federal and regional officials that was shown live on the state's 24-hour news channel.

"I intend to sign not only the law ... but also a presidential decree that will modify the support mechanisms for orphaned children ... especially those who are in a difficult situation, by that I mean in poor health," Putin said.

Critics of the bill say the Russian authorities are playing political games with the lives of children, while the U.S. State Department repeated its "deep concern" over the measure.

"Since 1992 American families have welcomed more than 60,000 Russian children into their homes, and it is misguided to link the fate of children to unrelated political considerations," State Department spokesman Patrick Ventrell said in a statement.

Ventrell added that the United States was troubled by provisions in the bill that would restrict the ability of Russian civil society organizations to work with U.S. partners.

Children in Russia's crowded and troubled orphanage system - particularly those with serious illnesses or disabilities - will have less of a chance of finding homes, and of even surviving, if it becomes law, child rights advocates say.

They point to people like Jessica Long, who was given up shortly after birth by her parents in Siberia but was raised by adoptive parents in the United States and became a Paralympic swimming champion.

However, the Russian authorities point to the deaths of 19 Russian-born children adopted by American parents in the past decade, and lawmakers named the bill after a boy who died of heat stroke in Virginia after his adoptive father left him locked in a car for hours.

Putin reiterated Russian complaints that U.S. courts have been too lenient on parents in such cases, saying Russia has inadequate access to Russian-born children in the United States despite a bilateral agreement that entered into force on November 1.

NATIONAL IDENTITY

But Putin, who began a new six-year term in May and has searched for ways to unite the country during 13 years in power, suggested there were deeper motives for such a ban.

"For centuries, neither spiritual nor state leaders sent anyone abroad," he said, indicating he was not speaking specifically about Russia but about many societies.

"They always fight for their national identities - they gather themselves together in a fist, they fight for their language, culture," he said.

The bid to ban American adoptions plays on sensitivity in Russia about adoptions by foreigners, which skyrocketed as the social safety net unraveled with the 1991 Soviet collapse.

Families from the United States adopt more Russian children than those of any other country.

Putin had earlier described the Russian bill as an emotional but appropriate response to the Magnitsky Act, legislation signed by President Barack Obama this month as part of a law granting Russia "permanent normal trade relations" (PNTR) status.

The U.S. law imposes visa bans and asset freezes on Russians accused of human rights violations, including those linked to the death in a Moscow jail of Sergei Magnitsky, an anti-graft lawyer, in 2009.

The Russian bill would impose similar measures against Americans accused of violating the rights of Russian abroad and outlaw some U.S.-funded non-governmental groups.

(Reporting By Alexei Anishchuk; additional reporting by Andrew Quinn in Washington; Writing by Alissa de Carbonnel and Steve Gutterman; Editing by Andrew Osborn and Doina Chiacu)

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Egypt's Mubarak moved to army hospital on health concerns

CAIRO (Reuters) - Hosni Mubarak, the Egyptian strongman ousted last year after 30 years in power, was moved to an army hospital from a prison hospital on Thursday following a fall that raised fresh concerns about his fragile health.

Mubarak, 84, was forced out in a 2011 uprising and sentenced to life in prison in June of this year for his role in killing protesters during the revolt. He was admitted to a prison hospital that month following what security officials called a "health crisis".

Mubarak's health has been the subject of intense speculation in Egypt and he has spent much of the time before and after his trial in the prison hospital.

His lawyer said he was transferred to the military hospital after fracturing a rib in the fall in his prison clinic. He said he also suffered from lung complications and dizziness.

"The health condition is deteriorating to some extent due to the president's fall the week before last," lawyer Mohamed Abdel Razek told Reuters.

Mubarak is to be treated at the military hospital in Cairo's Maadi suburb. "He will stay for awhile," a security source told Reuters.

Mubarak's legal team had been pressing to have him moved from the prison hospital to a better-equipped facility, saying he was not receiving adequate treatment.

There has been no clarity, however, on the exact nature of any of his ailments, with state media reporting a variety of illnesses ranging from shortage of breath to heart attacks and comas.

On July 16 Mubarak was sent back to prison on the orders of the former public prosecutor who said his health had improved and he no longer needed the advanced care of the military hospital where he had been moved in June.

At the time, senior officers and military sources gave various accounts of Mubarak's condition, including that he was in a coma and on life support.

The fate of his family, accused by Egypt's new rulers of accumulating vast wealth illegally during Mubarak's long reign, is also the subject of much speculation.

Public prosecutor Talaat Abdallah has agreed to a request from Egypt's illicit gains authority investigating corruption to confiscate funds from two bank accounts belonging to Mubarak's wife Suzanne and move them to the central bank, the MENA news agency said.

The state newspaper al-Ahram said the amount to be confiscated was 27 million Egyptian pounds ($4.4 million). In May 2011 Suzanne Mubarak was released from detention on graft accusations and relinquished some of her assets to the state.

Mubarak's two sons are also being held in prison, facing trial on graft charges, which they deny.

(Reporting by Shaimaa Fayed, Marwa Awad and Yasmine Saleh; Writing by Shaimaa Fayed; Editing by Michael Roddy)

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U.S. suspends embassy operations in rebel-hit Central African Republic

WASHINGTON (Reuters) - The United States said on Thursday it was suspending operations at its embassy in the Central African Republic as rebels appeared poised to move on the capital of the impoverished but resource-rich nation.

U.S. State Department spokesman Patrick Ventrell said the U.S. embassy had temporarily suspended operations and that the U.S. ambassador and other embassy personnel had left the country.

"This decision is solely due to concerns about the security of our personnel and has no relation to our continuing and long-standing diplomatic relations with the CAR," Ventrell said in a statement.

(Reporting By Andrew Quinn; Editing by Sandra Maler)

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CAR appeals for French help against rebels, Paris balks

BANGUI (Reuters) - The president of the Central African Republic appealed on Thursday for France and the United States to help push back rebels threatening his government and the capital, but Paris said its troops were only ready to protect French nationals.

The exchanges came as regional African leaders tried to broker a ceasefire deal and as rebels said they had temporarily halted their advance on Bangui, the capital, to allow talks to take place.

Insurgents on motorbikes and in pickup trucks have driven to within 75 km (47 miles) of Bangui after weeks of fighting, threatening to end President Francois Bozize's nearly 10-year-stint in charge of the turbulent, resource-rich country.

French nuclear energy group Areva mines the Bakouma uranium deposit in the CAR's south - France's biggest commercial interest in its former colony.

The rebel advance has highlighted the instability of a country that has remained poor since independence from Paris in 1960 despite rich deposits of uranium, gold and diamonds. Average income is barely over $2 a day.

Bozize on Thursday appealed for French and U.S. military support to stop the SELEKA rebel coalition, which has promised to overthrow him unless he implements a previous peace deal in full.

He told a crowd of anti-rebel protesters in the riverside capital that he had asked Paris and Washington to help move the rebels away from the capital to clear the way for peace talks which regional leaders say could be held soon in Libreville, Gabon.

"We are asking our cousins the French and the United States, which are major powers, to help us push back the rebels to their initial positions in a way that will permit talks in Libreville to resolve this crisis," Bozize said.

France has 250 soldiers in its landlocked former colony as part of a peacekeeping mission and Paris in the past has ousted or propped up governments - including by using air strikes to defend Bozize against rebels in 2006.

But French President Francois Hollande poured cold water on the latest request for help.

"If we have a presence, it's not to protect a regime, it's to protect our nationals and our interests and in no way to intervene in the internal business of a country, in this case the Central African Republic," Hollande said on the sidelines of a visit to a wholesale food market outside Paris.

"Those days are over," he said.

Some 1,200 French nationals live in the CAR, mostly in the capital, according to the French Foreign Ministry, where they typically work for mining firms or aid groups.

CEASEFIRE TALKS

The U.N. Security Council issued a statement saying its members "condemn the continued attacks on several towns perpetrated by the 'SELEKA' coalition of armed groups which gravely undermine the Libreville Comprehensive Peace Agreement and threaten the civilian population."

U.S. State Department spokesman Patrick Ventrell said the U.S. embassy had temporarily suspended operations and the U.S. ambassador and other embassy personnel had left the country.

Officials from around central Africa are due to meet in Bangui later on Thursday to open initial talks with the government and rebels.

A rebel spokesman said fighters had temporarily halted their advance to allow dialogue.

"We will not enter Bangui," Colonel Djouma Narkoyo, the rebel spokesman, told Reuters by telephone.

Previous rebel promises to stop advancing have been broken, and a diplomatic source said rebels had taken up positions around Bangui on Thursday, effectively surrounding it.

The atmosphere remained tense in the city the day after anti-rebel protests broke out, and residents were stocking up on food and water.

Government soldiers deployed at strategic sites and French troops reinforced security at the French embassy after protesters threw rocks at the building on Wednesday.

In Paris, the French Foreign Ministry said protecting foreigners and embassies was the responsibility of the CAR authorities.

"This message will once again be stressed to the CAR's charge d'affaires in Paris, who has been summoned this afternoon," a ministry spokesman said.

He also said France condemned the rebels for pursuing hostilities and urged all sides to commit to talks.

Bozize came to power in a 2003 rebellion that overthrew President Ange-Felix Patasse.

However, France is increasingly reluctant to directly intervene in conflicts in its former colonies. Since coming to power in May, Hollande has promised to end its shadowy relations with former colonies and put ties on a healthier footing.

A military source and an aid worker said the rebels had got as far as Damara, 75 km (47 miles) from Bangui, by late afternoon on Wednesday, having skirted Sibut, where some 150 Chadian soldiers had earlier been deployed to try and block a push south by a rebel coalition.

With a government that holds little sway outside the capital, some parts of the country have long endured the consequences of conflicts in troubled neighbors Chad, Sudan and the Democratic Republic of Congo spilling over.

The Central African Republic is one of a number of nations in the region where U.S. Special Forces are helping local forces try to track down the Lords Resistance Army, a rebel group responsible for killing thousands of civilians across four African nations.

(Additional reporting by Leigh Thomas and Louis Charbonneau; Writing by Richard Valdmanis; Editing by Andrew Osborn and Paul Simao)

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Mental illness, poverty haunted Afghan policewoman who killed American

KABUL (Reuters) - The Afghan policewoman suspected of killing a U.S. contractor at police headquarters in Kabul suffered from mental illness and was driven to suicidal despair by poverty, her children told Reuters on Wednesday.

The woman was identified by authorities as Narges Rezaeimomenabad, a 40-year-old grandmother and mother of three who moved here from Iran 10 years ago and married an Afghan man.

On Monday morning, she loaded a pistol in a bathroom at the police compound, hid it in her long scarf and shot an American police trainer, apparently becoming the first Afghan woman to carry out such an attack.

Narges also tried to shoot police officials after killing the American. Luckily for them, her pistol jammed. Her husband is also under investigation.

Her son Sayed, 16, and daughter Fatima, 13, described how they tried to call their parents 100 times after news broke of the shooting, then waited in vain for them to come home.

They recalled Narges's severe mood swings, and how at times she beat them and even pulled out a knife. But the children said she was consistent in bemoaning poverty.

"She was usually complaining about poverty. She was complaining to my father about our conditions. She was saying that my father was poor," Sayid said in an interview in their damp, cold two-room cement house.

On the floor beside him were his mother's prescriptions and a thick plastic bag filled with pills she tried to swallow to end the misery about a month ago. On another occasion, she cut her wrist with a razor, Sayed said.

"My father was usually calm and sometimes would say that she was guilty too because it wasn't a forced marriage. They fell in love and got married."

There was no sign in their neighborhood of the billions of dollars of Western aid that have poured into Afghanistan since the ouster of the Taliban in 2001, or of government investment.

RAW SEWAGE, STAGNANT WATER, DIRT ROADS

The lane outside their home stank of raw sewage.

Dirty, stagnant water filled holes in dirt roads nearby, where children in tattered clothes played and butchers stood by cow's hooves in shops choked by dust.

Afghanistan is one of the world's poorest nations, with a third of its 30 million residents living under the poverty line.

The sole distractions from the daily grind appeared to be a deck of playing cards and a compact disc with songs from Iranian pop singers, scattered on the floor of a room where Narges would lock herself in and weep, or sit in silence.

At times, Narges would try to focus on building her children's confidence, telling them to be guided by the Muslim holy book, the Koran, to tackle life's problems.

Sayed and Fatima said she never spoke badly of the U.S. presence in Afghanistan or of President Hamid Karzai's government.

Neighbor Mohammad Ismail Kohistani was dumbfounded to hear on the radio that Afghan officials were combing Narges' phone records to try to determine whether al Qaeda or the Taliban could have brainwashed her into carrying out a mission.

But he was acutely aware of her mental problems and often heard her scream at her husband, whose low-level job in the crime investigation unit of the police brought home little cash.

Kohistani, who operates a small sewing shop with battered machines, never imagined his neighbor could be accused of a high-profile attack that raised new questions about the direction of an unpopular war.

"I became very depressed and sad," said Kohistani, sitting on the floor few feet from a tiny wood-burning stove in Narges's home, alongside family photographs and a police training manual.

Fatima would often seek refuge in Kohistani's house when her mother's behavior became unbearable. "She did not hate us, but usually she was angry and would not talk to us," said Fatima, her eyes moist with tears.

Nevertheless, she missed her mother. The children were staying with a cousin.

"I ask the government to free my mother, otherwise our future will be destroyed," said Fatima.

Officials described it as another "insider shooting", in which Afghan forces turn on Westerners they are meant to be working with to stabilize the country. There have been over 52 such attacks so far this year.

The shooting at the police headquarters may have alarmed Afghanistan's Western allies. But some Afghans have grown numb to the violence.

Kohistani's 70-year-old father Omara Khan, who sports a white beard, sat twirling prayer beads beneath a photograph of Narges in a black veil beside one of her husband.

Asked what he thought of the attack, he laughed.

"This is common in Afghanistan," said Khan, who lived through decades of upheaval, including the 10-year Soviet occupation and a civil war that destroyed half of Kabul and killed some 50,000 civilians.

"People are killed every day."

(Editing by Ron Popeski)

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Syria to discuss Brahimi peace proposals with Russia

BEIRUT (Reuters) - Syrian President Bashar al-Assad sent a senior diplomat to Moscow on Wednesday to discuss proposals to end the conflict convulsing his country made by international envoy Lakhdar Brahimi, Syrian and Lebanese sources said.

Brahimi, who saw Assad on Monday and is planning to hold a series of meetings with Syrian officials and dissidents in Damascus this week, is trying to broker a peaceful transfer of power, but has disclosed little about how this might be done.

More than 44,000 Syrians have been killed in a revolt against four decades of Assad family rule, a conflict that began with peaceful protests but which has descended into civil war.

Past peace efforts have floundered, with world powers divided over what has become an increasingly sectarian struggle between mostly Sunni Muslim rebels and Assad's security forces, drawn primarily from his Shi'ite-rooted Alawite minority.

Deputy Foreign Minister Faisal Makdad flew to Moscow to discuss the details of the talks with Brahimi, said a Syrian security source, who would not say if a deal was in the works.

However, a Lebanese official close to Damascus said Makdad had been sent to seek Russian advice on a possible agreement.

He said Syrian officials were upbeat after talks with Brahimi, the U.N.-Arab League envoy, who met Foreign Minister Walid Moualem on Tuesday a day after his session with Assad, but who has not outlined his ideas in public.

"There is a new mood now and something good is happening," the official said, asking not to be named. He gave no details.

Russia, which has given Assad diplomatic and military aid to help him weather the 21-month-old uprising, has said it is not protecting him, but has fiercely criticized any foreign backing for rebels and, with China, has blocked U.N. Security Council action on Syria.

"ASSAD CANNOT STAY"

A Russian Foreign Ministry source said Makdad and an aide would meet Foreign Minister Sergei Lavrov and Mikhail Bogdanov, the Kremlin's special envoy for Middle East affairs, on Thursday, but did not disclose the nature of the talks.

On Saturday, Lavrov said Syria's civil war had reached a stalemate, saying international efforts to get Assad to quit would fail. Bogdanov had earlier acknowledged that Syrian rebels were gaining ground and might win.

Given the scale of the bloodshed and destruction, Assad's opponents insist the Syrian president must go.

Moaz Alkhatib, head of the internationally-recognized Syrian National Coalition opposition, has criticized any notion of a transitional government in which Assad would stay on as a figurehead president stripped of real powers.

Comments on Alkhatib's Facebook page on Monday suggested that the opposition believed this was one of Brahimi's ideas.

"The government and its president cannot stay in power, with or without their powers," Alkhatib wrote, saying his Coalition had told Brahimi it rejected any such solution.

While Brahimi was working to bridge the vast gaps between Assad and his foes, fighting raged across the country and a senior Syrian military officer defected to the rebels.

Syrian army shelling killed about 20 people, at least eight of them children, in the northern province of Raqqa, a video posted by opposition campaigners showed.

The video, published by the Syrian Observatory for Human Rights, showed rows of blood-stained bodies laid out on blankets. The sound of crying relatives could be heard in the background.

The shelling hit the province's al-Qahtania village, but it was unclear when the attack had occurred.

STRATEGIC BASE

Rebels relaunched their assault on the Wadi Deif military base in the northwestern province of Idlib, in a battle for a major army compound and fuel storage and distribution point.

Activist Ahmed Kaddour said rebels were firing mortars and had attacked the base with a vehicle rigged with explosives.

The British-based Observatory, which uses a network of contacts in Syria to monitor the conflict, said a rebel commander was among several people killed in Wednesday's fighting, which it said was among the heaviest for months.

The military used artillery and air strikes to try to hold back rebels assaulting Wadi Deif and the town of Morek in Hama province further south. In one air raid, several rockets fell near a field hospital in the town of Saraqeb, in Idlib province, wounding several people, the Observatory said.

As violence has intensified in recent weeks, daily death tolls have climbed. The Observatory reported at least 190 had been killed across the country on Tuesday alone.

The head of Syria's military police changed sides and declared allegiance to the anti-Assad revolt.

"I am General Abdelaziz Jassim al-Shalal, head of the military police. I have defected because of the deviation of the army from its primary duty of protecting the country and its transformation into gangs of killing and destruction," the officer said in a video published on YouTube.

A Syrian security source confirmed the defection, but said Shalal was near retirement and had only defected to "play hero".

Syrian Interior Minister Mohammed Ibrahim al-Shaar left Lebanon for Damascus after being treated in Beirut for wounds sustained in a rebel bomb attack this month.

(Additional reporting by Laila Bassam; Writing by Alistair Lyon; Editing by Andrew Osborn)

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Egypt's contentious Islamist constitution becomes law

CAIRO (Reuters) - President Mohamed Mursi admitted on Wednesday that Egypt's economy faces serious problems after he enacted a new, bitterly contested constitution that is supposed to help end political unrest and allow him to focus on the financial crisis.

The president said the economy also had great opportunities to grow, but earlier the Egyptian pound tumbled to its weakest level in almost eight years as ever more people rushed to buy dollars and withdraw their savings from banks.

Mursi, catapulted into power by his Islamist allies this year, believes that adopting the constitution quickly and holding elections to a permanent new parliament soon will help to end the long period of turmoil that has wrecked the economy.

The presidency announced on Wednesday that Mursi had formally approved the constitution, which was drafted by his Islamist allies, the previous evening, shortly after results showed that Egyptians had backed it in a referendum.

Keen to be seen as tough but fair, Mursi said it was time for all political forces to put aside their differences and start working together to bring economic stability.

"I will make all efforts, together with you, to push forward the economy which faces huge challenges and has great opportunities to grow," Mursi said in his first address to the nation since the adoption of the constitution.

The text won about 64 percent in a two-stage referendum, paving the way for a new parliamentary vote in about two months.

The main opposition group, which has until now boycotted all rounds of national unity talks led by Mursi's office, said it had not changed its position.

"The ongoing talks are farcical and theatrical," Hussein Abdel Ghani, an opposition spokesman, told reporters. He called on Egyptians to demonstrate against the new constitution on January 25, the second anniversary of Egypt's revolution.

He added that the opposition would stick to its policy of peaceful protest against Mursi's government, which he said sought to use religion as a tool to create an oppressive state.

ANOTHER ISLAMIST VICTORY

The referendum result marked yet another electoral victory for the Islamists since veteran autocrat Hosni Mubarak was toppled in 2011, following parliamentary elections last year and the presidential vote that brought Mursi to power this year.

The charter states that the principles of sharia, Islamic law, are the main source of legislation and that Islamic authorities will be consulted on sharia - a source of concern to the Christian minority and others.

Mursi's government, which has accused opponents of damaging the economy by prolonging the political upheaval, now faces the tough task of building a broad consensus as it prepares to impose hugely unpopular austerity measures.

In his speech, Mursi said he would introduce incentives to make Egypt - once a darling of emerging market investors - an attractive place for business once again, and he would consider making changes in the cabinet as part of his plan.

He also appeared keen to seem tolerant of those who voted "no" in this month's referendum.

"This is their right," he said. "Those who said 'no' and those who said 'yes', I thank you both because we do not want to return to the era of one opinion or fake majorities."

CRISIS ATMOSPHERE

The atmosphere of crisis deepened this week after the Standard & Poor's agency downgraded Egypt's long-term credit rating and warned of a possible further cut. The government has imposed currency restrictions to reduce capital flight.

In Cairo's bustling center, people appeared nervous, openly expressing their frustration with economic instability as they went about their daily business.

"The country's going to the pits. Everything is a mess," Hamdy Hussein, a 61-year-old building janitor, said angrily. "It's worse than ever. Mubarak was better than now. People were living and there was security."

Ashraf Mohamed Kamal, 30, added: "The economic situation will be a mess in the next few years. It already is. People will get hungrier. People are now begging more."

The pound traded as low as 6.1775 against the dollar on Wednesday, close to its all-time low of 6.26 hit on October 14, 2004, on concerns that the government might devalue or tighten restrictions on currency movements.

"All customers are rushing to buy dollars after the downgrading," said a dealer at a Cairo-based bank. "We'll have to wait to see how the market will operate with the U.S. dollar, because as you know there is a rush at the moment."

The government is now in talks with business figures, trade unions and other groups to persuade them of the need for tax increases to resolve the crisis. Mursi has committed to such austerity measures to receive a $4.8 billion loan from the International Monetary Fund.

However, Al-Mal newspaper quoted Planning Minister Ashraf al-Araby as saying the government would not implement the tax increases until it had completed the dialogue with different parts of society.

Mursi's government argues the constitution offers enough protection to all groups, and that many Egyptians are fed up with street protests that have prevented a return to normality.

The charter gives Egypt's upper house of parliament, which is dominated by Islamists, full legislative powers until the vote for a new lower house is held.

Mursi is also due to address the upper house on Saturday in a speech likely to be dominated by economic policy.

Sharpening people's concerns, the authorities imposed currency controls on Tuesday to prevent capital flight. Leaving or entering Egypt with more than $10,000 in cash is now banned.

Adding to the government's long list of worries, Communications Minister Hany Mahmoud has resigned citing his "inability to adapt to the government's working culture".

(Additional reporting by Patrick Werr and Tamim Eylan; Writing by Maria Golovnina; editing by David Stamp)

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Sudan's Bashir says ready to meet Kiir to try to get oil flowing

KHARTOUM (Reuters) - Sudan's President Omar Hassan al-Bashir said on Wednesday he was ready to meet his South Sudanese counterpart Salva Kiir to try to move forward with setting up a demilitarized border zone and restart oil flows.

His comments raise the prospect that the two could set aside their differences after signing agreements in September meant to secure their disputed border and to allow the South to resume oil exports after the two came close to war in April in the worst violence since Juba seceded last year.

However, neither country has yet withdrawn its army from either side of their shared border, a precondition to resume oil flows from the landlocked south through the north, a lifeline for both economies.

South Sudan had initially planned to resume exports by year-end after shutting down its output of 350,000 barrels a day in January after failing to agree an export fee with Sudan.

Two weeks ago, the African Union, backed by Western powers, urged Bashir and Kiir to meet as soon as possible to resolve all their disputes. Delegations from both countries are scheduled to resume talks in Ethiopia in mid-January.

"I am ready to meet Salva Kiir to speed up implementing all agreements at the same time," Bashir said, after meeting Ethiopian Prime Minister Hailemariam Desalegn who is trying to mediate in the row.

"I am ready to meet Kiir at any place," Bashir said.

Desalegn said he would fly to Juba on Thursday to meet Kiir. "I will be having the same discussion with President Salva Kiir to help us implement the already signed agreements," he said.

South Sudan seceded from Sudan under a 2005 peace agreement which ended decades of civil war. But both countries have yet to demarcate their disputed border which straddles oil production facilities.

The two rivals are also at odds over Abyei, a contested area between Sudan and South Sudan prized for its fertile grazing land.

(Reporting by El-Tayeb Siddig and Khalid Abdelaziz; Writing by Ulf Laessing; Editing by Andrew Osborn)

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South Africa's Mandela discharged from hospital: government

JOHANNESBURG (Reuters) - Former South African President Nelson Mandela has been discharged from hospital, ending a nearly three-week stay during which he was treated for a lung infection and had surgery to remove gallstones, the government said on Wednesday.

The 94-year-old anti-apartheid leader and Nobel Peace Prize laureate has been moved to his Johannesburg home. He has been in frail health for several years.

"He will undergo home-based high care at his ... home until he recovers fully," the government said in a statement issued by the presidency.

"We request a continuation of the privacy consideration in order to allow for the best possible conditions for full recovery," it said, without offering further details.

Mandela has a history of lung problems dating back to when he contracted tuberculosis while in jail as a political prisoner. He spent 27 years in prison, including 18 years on the windswept Robben Island off Cape Town.

The former president was admitted to a Pretoria hospital on December 8 and this was his longest stay in hospital since he was released from prison in 1990.

Current President Jacob Zuma visited Mandela on Christmas Day and said the former South African leader was doing much better, making progress and in good spirits.

Mandela was also admitted to hospital in February because of abdominal pain but released the following day after a keyhole examination showed there was nothing seriously wrong with him.

He has spent most of his time since then in another home in Qunu, his ancestral village in the impoverished Eastern Cape province.

His poor health has prevented him from making any public appearances in the past two years, although he has continued to receive high-profile visitors, including former U.S. President Bill Clinton earlier this year.

Mandela became South Africa's first black president after the country's first all-race elections in 1994.

After his release from prison, he used his popularity to push for reconciliation between whites and blacks, which became the bedrock of the post-apartheid "Rainbow Nation".

Mandela stepped down as president in 1999 after one term in office and has largely been absent from public life for the last decade.

(Reporting by David Dolan, Peroshni Govender and Jon Herskovitz; Editing by Andrew Osborn)

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